Pre-con 101: interim occupancy explained

Pre-con 101: interim occupancy explained

After years of waiting for your pre-construction unit to be finished, the day finally arrives: you get to move in. But just because you’re allowed to live there doesn’t mean you own it yet. 

Developers don’t wait for an entire building to be ready before having people live there. As units are completed, buyers are expected to take occupancy. But because all the units aren’t finished, the building can’t be registered with the municipality. And if it isn’t registered, you can’t own a part of it. Ownership remains with the developer.

This “limbo” is called interim occupancy – and while it may be frustrating, it’s a normal part of buying into a new development. Most buyers of pre-construction condos go through an occupancy period. Here’s what you need to know: 

You’ll pay monthly occupancy fees until you take ownership.

Also known as a “phantom mortgage,” these fees are like rent – they go towards covering the developer’s costs, not towards your mortgage. That doesn’t start getting paid until the building is registered and the title is transferred to you. According to the Condominium Authority of Ontario, your occupancy fee is based on 3 things: 

1. The interest on your unpaid balance (what you owe, less any deposits you’ve paid) at a rate set out in your purchase agreement. 

2. Estimated municipal taxes for the unit. 

3. Projected common expense fees. 

The occupancy period can range from a few months to over a year.

To minimize waiting, buy with an experienced developer with a good reputation, and find out beforehand how long their occupancy periods typically last. Chances are, their familiarity with the process will mean things go smoother and move faster. 

The higher the floor, the shorter the occupancy period.

Developers typically finish buildings from the ground up. If your unit is on a lower floor, you’ll be among the first to move in, and your occupancy period will be longer. If you’ve bought the penthouse, on the other hand, you’ll move in last, and your occupancy will be the shortest. 

A short occupancy period is in the developer’s best interest.

They don’t want to extend it any longer than they have to. Banks won’t release buyer mortgage funds until the building is registered and all the owners have started paying their mortgages. 

Everything you need to know is in your purchase agreement.

Read it carefully and have your real estate lawyer take a close look as well. It will let you know what to expect for your interim occupancy period – how much your monthly costs may be and how long it will last. 

If you’re planning to rent out your unit during occupancy, you need permission from the builder.

Technically, they own the unit until the title is transferred to you. It’s best to get this information before you buy. 

You can sell your unit before closing (if your purchase agreement says you can).

That’s called an assignment sale, and it has different rules than selling a  resale unit. For one, you have to have the developer’s permission to assign, though that’s something your real estate agent would have advised you on when you were buying the unit (a good reason to use an agent to buy pre-con!) 

Got questions about buying a pre-construction unit? Talk to a Property.ca agent – they’ll be happy to walk you through all the pros and cons, and get you first access to some of the city’s hottest developments.

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