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The Builder’s Condominium Agreements of Purchase and Sale – Understanding Adjustments

By on Apr 06, 2011 in Legal
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Adjustments are development costs which the condominium builder (the “Builder”) must incur in order to deliver the condominium units to the purchasers.  These adjustments are disclosed in the agreement of purchase and sale (the “Agreement”) and are the purchaser’s responsibility to pay on typically the final closing date.   The most common adjustments on a condominium closing include: The HST Rebate (if applicable), deposits paid, any charges for upgrades and the purchasers proportionate share of the realty taxes, utility expenses and common expenses which are paid in advance for the month or year and are prorated to the day of closing and any amounts overpaid by the Builder will be adjusted and paid for by the purchaser.

More contentious adjustments that most purchasers are not aware of but are described in the Agreement include: Utility meter installations, Tarion home warranty enrolment costs, the Builder’s law society levy charges, development levies, cost for a status certificates, two (2) months of common expenses up front (in order to adequately fund the reserve fund), obtaining partial discharges of mortgages that the Builder has on title, energization costs and more.

One of the highest adjustment costs are development levies.  Without getting into the legal technicalities of Ontario’s planning and development legislation, development levies are basically costs that the builder will incur as a result of gaining the right to build a certain condominium project at a specific size in a specific site.  For example, the Builder will propose to build a 40 storey condominium tower; however the municipality will only allow the Builder 30 storeys.  Under the legislation, the Builder and the municipality may strike a deal during the planning approval process whereby the Builder will get the 40 storeys they desire, however in return the Builder must provide the municipality with some sort of public benefit such as a school or a small urban park.  The cost to provide this public benefit is passed onto the purchaser and it can be considerable.

These adjustment costs are contentious because although the builder itemizes the adjustments, they do not typically disclose the exact cost for those adjustments simply because by the time the condominium closes, those costs may change and the Builder does not want to be responsible for any of those amounts.  Sometimes the Builder in the Agreement will agree to cap the individual adjustments at a certain charge, but most of the time any cap to any adjustment has to be requested and or negotiated by the purchaser either directly through the sales agents or between the solicitors.   It is always best to get a global cap on all the adjustments so that the purchaser has some idea of their closing costs.

This is why it is important to have an experienced real estate lawyer review the Agreement and discuss the additional costs that the purchaser will incur on closing.  It is not unusual for a purchaser to pay thousands of dollars extra on closing as a result of those adjustments.  However it is important to note that if a condominium project is in high demand, the odds that the Builder will make concessions to any part of the Agreement are slim.

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Related Article: Can You Refuse to Close if Your Condominium Square Footage is Less Than You Bargained For?
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About the Author

Maxim Zavet is a real estate lawyer in the city of Toronto. His practice is primarily focused in various residential and commercial real estate transactions for individuals, corporations and developers. Maxim had worked at some of Toronto's premier real estate law firms before becoming a founder and partner at PLZ Law.
  • http://www.Rokham.org Rokham Fard

    Can you please share a range for the cap on these closing costs, although they differ from building to building?

  • mzavet

    In my experiance the adjustments have typically ranged from $5000.00 to even as high as $15,000.00. Also it is important to keep in mind that some of the adjustments are also subject to HST. Some of the itemized adjustment costs are as follows: $500.00 for each utility connection, $2500 + for development levies, $1000.00 for Tarion enrollment, $100.00 for status certificates, $150.00 for partial discharges of the Builder's mortgages. Hope that helps!

  • http://www.Rokham.org Rokham Fard

    It certainly did and thanks for breaking down the itemized costs as well.

  • http://www.theredpin.com/blog/legal/the-implications-of-renting-your-condominium-unit The Implications of Renting Your Condominium Unit | TheRedPin Pulse: Where the Canadian New Homes Have a Heartbeat

    [...] Related Article: The Implications of Renting Your Condominium Unit Related Article: Understanding Adjustments [...]

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  • Alee172

    Is there anyway if i can avoid paying for the development levy imposed by the builder? what kind of excuse should I tell the builder to avoid paying? thanks in advance