By Jacqueline Moneta JD and Jayson Schwarz LLM
With the average prices of homes in the GTA soaring to over $1 million, this makes condominiums an attractive and more affordable option. Condos represent an opportunity to enter the market for first-time buyers, and investors alike, especially when it comes to preconstruction condos.
But with the current pandemic causing uncertainty across the board what options do preconstruction condo owners have when it comes to liquidating their investment early?
Buying new in Ontario has a number of advantages. Over time you can save up more deposit and based on past history and the fact it takes years to complete a building and turn it over to the owners, the value of your unit should rise, allowing you to have an asset worth more on the closing then you paid for it. Another advantage is choice. Buyers of preconstruction condos are able to select everything from their frontage and floor plans to fixtures and finishes. There are many varieties of condominiums. A buyer can choose from townhouses, hi-rise, low rise etc. In addition many projects contain a myriad of common elements aimed at enhancing your lifestyle.
When it comes to terminating your agreement early, Ontario’s Condominium Act allows a buyer to terminate a purchase agreement of a preconstruction condo after signed by all parties and within 10 days of receipt of all of the condominium documents. During this ten-day cooling-off period a purchaser of a preconstruction strongly benefits from retaining a lawyer to review their agreement and making amendments as necessary to cap things like adjustments so the certainty of what you will pay is firmed up before closing. Getting a real estate lawyer that you trust early in the process can save you time and money in the long term. Your lawyer will be able to negotiate your contract, handle your occupancy closing and register the property in your name once the building is complete.
After your ten-day cooling-off period is expired an assignment agreement may be a suitable option. An assignment purchase is most commonly used when someone has entered an agreement of purchase and sale with a builder for a pre-construction condo, and then wants to sell the unit before being required to take possession or close. This needs a clause in your Agreement of Purchase and Sale permitting assignments. Most builders allow this, but build in costs for the privilege of letting you do that.
Assignments can be more complicated that a resale. Essentially you are selling a new buyer your agreement of purchase and sale. You are selling the paper not the unit. It is important to have both a realtor and lawyer who understand assignments working with you. Remember you have to collect HST on the sale of the Agreement or you will be stuck with it and also you need to declare the money earned if a profit on your next tax return due.
Assignments can be advantageous, especially in today’s market, for the original buyer in several ways. Often, pre-construction condo buildings have a time lag between the original contract being signed, and the buyer moving in and/or having the property registered in their name. This leaves space for life to get in the way of your plans; new partners, new jobs, new kids or a global pandemic can all change your circumstances. What worked for you at the time of singing might not work with your lifestyle today.
In addition, some original buyers are looking forward to market trends and banking on an appreciation in price. Assignments allow buyers to realize profits sooner, rather than waiting for a final closing.
Another advantage to assigning a property is avoiding paying land transfer tax. Rather it’s the new buyer, or Assignee, who is responsible for land transfer tax on final closing.
While the world is adjusting to a new normal, its important re-evaluate your purchase and discuss your options with your realtor, mortgage broker and real estate lawyer. The right team will be able to help you navigate these uncertain times seamlessly, to get the most out of your investment.