Buying Pre-Construction in Toronto: What to Know Before You Sign

Written by Candice Schott, Broker, Schott & Co., Royal LePage Signature Realty, Brokerage

Pre-construction can work well if you have patience, a steady deposit plan and a lawyer who reads the fine print. It's a commitment to a building that doesn't exist yet, at a price set years before you move in.

The sales centre will show you the model suite, the finishes and the rendering. This guide covers the parts they don't always lead with, so you can decide with clear eyes.

Is there a cooling-off period on pre-construction in Ontario?

For new condos, yes. When you buy a new condo from a builder in Ontario, you have 10 days to cancel after you receive the signed agreement and the disclosure statement, whichever comes last. Use those days to have a real estate lawyer review the agreement, the disclosure statement and every schedule.

For new freehold homes, not yet. Ontario has passed a 10-day cooling-off period for new freehold homes bought from a builder, but it isn't in effect yet. Until it is, once you sign, you're committed. Have your lawyer review the agreement first, or make your offer conditional on a lawyer's review. Resale homes don't have a cooling-off period.

"Sign at the sales centre if you love it, but don't skip the lawyer. On a condo, those 10 days are the best protection you'll get. On a new house, get the review done before you sign." — Candice Schott

How do pre-construction deposits work?

Instead of one deposit, you usually pay several over the first year or two. A typical schedule spreads payments out over time, with more due at signing and at set dates after. Ask for the full schedule in writing and plan for every payment before you sign, because missing one can put the whole deal at risk.

Ask where your deposit is held and how it's protected. Condo deposits must be held in trust, and Tarion provides deposit protection on new homes and condos up to set limits. Your lawyer can confirm what applies to your purchase.

What is occupancy, and why do you pay rent on a condo you bought?

With a new condo, you often move in before the building is registered and before you officially own your unit. That stretch is called interim occupancy. During it, you pay the builder a monthly occupancy fee, which usually covers interest on the unpaid balance, estimated property taxes and common expenses. None of it goes toward your purchase price. It can last a few months or longer, so budget for it.

What happens if the project is delayed?

Delays are common. New-home agreements in Ontario include a Tarion addendum that sets out the closing or occupancy dates, how and when the builder can extend them and when you may be owed compensation for a delay. Read it closely, and plan your current living situation with some flexibility.

Projects can also be cancelled, usually because the builder couldn't sell enough units or get financing. If that happens, your deposit is returned, but you've lost time. Ask about the builder's track record before you buy.

What closing costs come with pre-construction?

More than resale buyers expect. On top of land transfer tax and legal fees, a new home or condo may include:

• Development charges and levies, which some agreements pass on to the buyer
• Utility meter and connection fees
• Tarion enrolment fees
• HST, which is usually built into the price, with any eligible new housing rebate assigned to the builder

Some agreements cap these charges and some don't. Ask your lawyer to flag every one. For more on rebates, read our post on the HST rebate on new homes, and see our closing costs guide.

Will you qualify for your mortgage at closing?

That's the big one. You'll be approved for a mortgage based on your income, your debts and interest rates at the time of closing, which can be years away. Your lender will also want to see the home appraise for what you paid. If values or rates change, you may need to bring more money to closing. Talk to a mortgage broker before you sign, and again before closing.

Questions to ask before you buy pre-construction

1. What is the full deposit schedule, and where is my deposit held?
2. What are the first tentative and firm closing or occupancy dates?
3. Which closing costs are capped, and which are uncapped?
4. Can I assign (sell) my unit before closing, and what does that cost?
5. What has this builder delivered before, and how did those buildings turn out?
6. What happens to my deposit if the project is cancelled?

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Common questions about pre-construction in Toronto

General information, not legal, tax, mortgage or investment advice. Rules for new homes and condos change, so confirm current rules with your lawyer, Tarion and the Home Construction Regulatory Authority. Not intended to solicit buyers or sellers currently under contract.