Interm Occupancy Interest
While it doesn’t get easier than condo living, the new construction process is very complicated. Watching the condo being built and waiting for your unit to be ready can be a frustrating experience but there’s another hurdle ahead. As you get ready to move in, you discover it’s the just beginning of a long and expensive process known as interim occupancy.
How Does Early Occupancy Work?
Once the construction of new condo units is complete, developers will work with government inspectors to determine when the developer can allow purchasers to move in to their unit. The time between the notice of occupancy and the registration of the building is known as the interim occupancy period. Since buildings usually occupy from the bottom up, people on lower floors often have longer interim occupancy periods than those on higher floors.
The problem is that during this period of time, purchasers don’t actually own their units yet. In Ontario, you can’t take ownership of your unit until construction is complete and the government registers the building as a new construction corporation. This old way of purchasing new pre-construction condos is a significant problem for purchasers because if the building isn’t registered, you can’t obtain a legal title or mortgage for your unit. And between lengthy approval times, government cutbacks and the number of new condominium projects, solving this challenge is a massive undertaking.
What Are Interim Occupancy Fees and Interim Occupancy Interest?
The Condominium Act allows developers to charge new condominium purchasers a monthly fee during interim occupancy period – known as interim occupancy fees. These fees are comprised of three main components:
- Interim Occupancy Interest: The interest on the unpaid balance of your purchase price.
- Property Taxes: Estimated amount for municipal taxes
- Maintenance Fees: Contribution for common building expenses
While property taxes and building maintenance fees will be an ongoing part of your monthly expenses, interim occupancy interest payments are an added cost. Worst of all, the old way doesn’t allow lenders to issue mortgages without title so these interest payments are paid out-of-pocket and don’t count towards your mortgage. This leaves many purchasers feeling like they’re paying “rent” for something they own.
A Lose-Lose Situation
At this point, you might think to yourself, “Well then I’ll just wait for the condo to be ready.” Unfortunately, that’s not an option. The Condominium Act states that all purchasers are responsible for paying interim occupancy fees, regardless if you decide to move in or not. And while mortgage lenders would love to help you carry those costs with a loan, there’s nowhere to issue the mortgage to without a registered building.
So, is it just another way for developers to cash in? Some might think so, but their assumptions would be misguided. Because developers make the majority of their money after the project has been registered, it’s in their best interest to complete the building in a timely matter. Plus, construction financing isn’t cheap so being able to pay that off sooner would be a huge benefit to their business.
The OneClose Solution
Considering increasing demands for condo living in Ontario, pre-construction condominiums will continue to play a significant role in our housing market and economy. In Ontario, there are an estimated 90,000 people who have purchased new pre-construction condominiums and expect occupancy of their units during the next five years.
Discover how OneClose can help you save money, avoid risks and simplify the new condominium purchase with our breakthrough financial solution.