Purchase tips for commercial or industrial condos
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Buying a new commercial or industrial condominium unit directly from the builder or a resale condominium unit can be a confusing process, especially for first time buyers.
By Maja Mitrovic
If you are purchasing a new Unit, the builder will usually require you to sign the builder’s form of agreement of purchase and sale (the “Builder’s Agreement”).
These Builder’s Agreements are lengthy and drafted strongly in the builder’s favour. As such, it is very important to have a real estate lawyer review the Builder’s Agreement with you before the Builder’s Agreement becomes binding. You can make your purchase conditional on your solicitor’s review of all of the terms and conditions of the Builder’s Agreement or take advantage of the 10-day cooling off period pursuant to the Condominium Act.
If you are purchasing a new Unit, you can rescind the Builder’s Agreement and receive a full refund of your deposit(s) within 10 days from the date you received copies of the accepted Builder’s Agreement and Disclosure Statement. The notice of rescission must be in writing and received by the builder or the builder’s lawyer within the 10-day period.
There is no 10 day rescission period when purchasing a resale Unit. In these circumstances, your purchase should be conditional on your solicitor’s review and approval of all of the terms and conditions of the agreement of purchase and sale (the “Resale Agreement”) and Status Certificate.
Important dates
The Builder’s Agreement includes such critical dates as the occupancy date and unit transfer date. The occupancy date is the date that the builder anticipates that the Unit will be ready for the buyer to occupy. The unit transfer date or closing date happens shortly after the condominium plan is registered and is the date that title to the Unit is transferred to the buyer.
The buyer is responsible for paying occupancy fees from the occupancy date until the unit transfer date, which fees are similar to rent that the buyer must pay to the builder until ownership is transferred. Buyers need to pay close attention to the anticipated occupancy date set out in the Builder’s Agreement and the builder’s right to extend the occupancy date by months or even years.
This could be a significant problem for a buyer who must occupy the Unit in order to commence its business by a certain date. A lengthy delay in the occupancy date could result in the buyer having to rent other premises or closing business.
The timing of the unit transfer date is also important because the buyer is obligated to pay occupancy fees until title to the property is registered in the buyer’s name. The time period that a buyer pays such occupancy fees could be months or even years and the occupancy fees are not credited towards the purchase price payable on final closing.
As such, the Builder’s Agreement should be carefully reviewed to determine critical dates and to limit the builder’s extension rights, and to provide a termination right for the buyer beyond a certain time period of delays.
Disclosure statement The Disclosure Statement that you receive from a builder with the Builder’s Agreement includes important information about the condominium project, including the proposed declaration, the budget and monthly common expenses to be paid by each Unit, the by-laws, rules and regulations, management agreement and condominium plan that delineates the location of the units within the project.
You should review these documents prior to your purchase becoming binding as there is important information in the Disclosure Statement that may affect your decision to purchase the Unit. The following is a list of some issues to keep in mind when reviewing the Disclosure Statement:
• restrictions in the occupation and use of the Unit that could prevent you from operating your business
• the builder’s right to alter the design, style, size, layout and/or configuration of the Unit and common elements comprised within the Condominium Corporation (the “Condominium”)
• restrictions on the type and location of signage permitted on the Unit
• whether any signage space on the pylon sign will be leased or owned by unit owners and the associated costs of owning or leasing space on the pylon sign and on the face of the Unit
• whether utilities will be separately metered in each Unit
• whether Unit owners are responsible for paying for their own waste and recycle removal • the builder is providing a shell Unit on occupancy (unlike with residential units) and the buyer will be responsible for obtaining finishing permits and completing fixturing the Unit for occupancy at the buyer’s cost and expense
• design plans for completing a Unit for occupancy must be approved by the builder at the cost of the buyer
• rules and regulations that restrict the permitted hours of business operations and parking
• shared facilities agreement with another condominium or property that are part of the common expenses payable by unit owners
• the Units that have exclusive use of common elements such as, loading docks, corridors and stairwells
If you are purchasing a Unit from the builder and the condominium plan has not yet been registered, then keep in mind that the documents included in the Disclosure Statement may change once the condominium plan is registered.
For example, a new budget will be prepared for the one-year period immediately following registration of the condominium plan. As such, the common expenses payable by each Unit may increase based on the budget that applies for the one year period after registration. In the event that there is a material change to any of the condominium documents provided as part of the Disclosure Statement, then the purchaser’s only remedy under the Condominium Act will be rescission of the Builder’s Agreement and the return of the deposits paid by the buyer.
Closing costs
When purchasing a new Unit there are hidden extra costs payable on closing to the builder, such as fees for installing utility meters and connecting utility services, development charges, park levies, security deposit, fee for status certificate, seller’s legal fees for a delay in closing, architectural review fee, costs of an appraisal, contribution to any shared capital accounts and mortgage discharge fees.
These closing costs are listed in the Builder’s Agreement as adjustments to the purchase price and can amount to hundreds or even thousands of dollars. Further, the purchase price agreed to and included in the Builder’s Agreement is often subject to a proportionate gross-up calculation based on the addition of certain common elements, which also results in an increase in the purchase price payable on closing by hundreds or even thousands of dollars. On reviewing the Builder’s Agreement, your solicitor can try to negotiate a cap on certain closing adjustments and seek to have others removed.
Harmonized Sales Tax (“HST”)
The purchase price for a Unit will typically be exclusive of the HST exigible with respect to the purchase and sale transaction. As such, you should seek advice from your accountant and solicitor regarding the HST that may be payable by you on a purchase of a Unit.
Status certificate
If you are purchasing a resale Unit, the Resale Agreement should include a condition to allow your solicitor time to review a Status Certificate for the Unit. The Status Certificate discloses very important information about the Condominium and the Unit and the current condominium documents provided with a Disclosure Statement as provided as part of the Status Certificate.
In addition to the issues that can be revealed by the Disclosure Statement as set out above, the Status Certificate may disclose issues such as, the amount of the common expenses payable by the Unit, lawsuits or judgments against the Condominium, an increase in the budget and common expenses payable by each Unit, special assessments and anticipated increases in the amounts contributed to the reserve fund.
Any of the above-noted issues disclosed in a Status Certificate, will result in an increase in the common expenses payable by each Unit. For example, the Status Certificate may disclose that the board of directors has decided to levy a special assessment due to an unexpected expenditure that cannot be fully paid for by the money in the reserve fund. A special assessment is an additional payment that all unit owners will need to pay based on their proportion of common interest in the common elements of the Condominium.
In addition to the increased cost for all unit owners, the concern with a special assessment is that it may be caused by the board of directors’ failure to have a reserve fund study completed in a timely manner as required by the Condominium Act and/or mismanagement of reserve funds.
When purchasing a condominium unit seek the legal advice of a real estate lawyer before your purchase is binding.