When you buy a pre-construction condo in Toronto, there is a different process for taking ownership than when you purchase a resale condo. As the condo building is not quite completed yet, there is an extended period of time in between when the purchase is initiated and final occupancy. A portion of this phase is the interim occupancy period, which takes place just before final closing.
The interim occupancy period is a concept unique to pre-construction condos, so it might be unfamiliar to many home buyers, particularly first-time buyers. Interim occupancy is defined as the period of time between the day you receive the keys and move in—even though you don’t legally own it yet—and the day final closing happens and you fully take ownership of the condo and begin paying your mortgage. This phase lasts anywhere from 6 to 8 months typically, but can be longer, while the building is still under construction.
At this stage the common elements in the building and the units on the higher floors are still under construction however the municipality has agreed that the building is safe to live in. Occupants start to move in from the lower floors upwards.
Once the building is complete and registered with the Land Registry Office, the developer then transfers ownership to the buyers of the individual units. At this point, the interim occupancy period ends, and final closing occurs. Typically the interim occupancy period is longer for the units on lower floors, which are completed earlier as opposed to units on higher floors. If you purchase a unit on a higher floor you’ll have a shorter Interim Occupancy period than units on lower floors.
While owners don’t have to move in during the interim occupancy period, they will still be responsible for interim occupancy fees. These fees are essentially paying rent to the developer. They are comprised of (i) monthly maintenance fees, (ii) an estimate of the property taxes for your unit, (iii) and interest on the unpaid balance of the unit’s purchase price. For more information, please consult the Condo Act of 1998.
While developers may levy these interim fees, they are not legal allowed to profit from them, thanks to the very strict Condo Act. Unfortunately, interim occupancy fees don’t build towards any equity in your new home, as none of it is applied towards your mortgage.
If you don’t plan on securing a mortgage and intend to pay the balance of the purchase price in cash up front, you will need to notify the developer within the 10-day cooling period. In this case, you will only pay estimated common expenses and estimated property tax as part of your interim occupancy fees.
Since interim occupancy is a foreign concept to those who have never purchased a pre-construction condo, here are some common questions prospective buyers might have:
What’s the point of the interim occupancy period? It allows you to move into your unit when it is ready, rather than having to wait for final closing.
Will the developer drag out this phase as long as possible? No, in fact, they want this period to be as short as possible. Thanks to the Condo Act, they can’t profit until the building is registered with the city and mortgages have taken effect for all residents.
How long will it last? The interim occupancy period is longer for lower floors than higher floors. An average is 3 to 6 months, but it may last from 8-12 months for lower floors.
What are the developer’s responsibilities during this period? The developer is responsible for providing the services that the condo corporation will take over upon completion of the building. These include: garbage disposal, property maintenance, and concierge services (if applicable).
Can I rent out the unit during interim occupancy? This can get complicated, as the developer is technically still the owner of your unit. So you will need to obtain permission from the developer before renting your unit during this time period. Think of the developer as your landlord.
Is there any way I can avoid paying interim occupancy fees? No, even if you do not move in, you will still have to pay the fees.
On a final note, please understand the lengths of the interim occupancy period specified here are merely set forth as guidelines; construction often experiences unexpected delays related to weather, the supply chain, and many other factors that can’t always be anticipated.
