If You’re Thinking Of Buying A New Construction Home, Read This First

Buying a new construction home is an exhilarating experience – looking over floor plans, hand-picking finishes, and envisioning your dream space coming to life. However, the agreement you'll need to sign with the builder for a pre-construction or "new build" property can be intimidatingly long and complex. It's crucial to understand exactly what you're getting into before signing on the dotted line, as most clauses in these agreements tend to favour the builder's interests over the buyer's.

Before executing an Agreement of Purchase and Sale for a new build, it's wise to consult with an experienced real estate lawyer. They can expertly review the contract, explain the finer details in plain language, and ensure your rights and investments are fully protected. With their guidance, you can approach the deal with confidence.

To help you navigate this new territory of contracts and details these are 5 key things you’ll want to pay close attention to when going over the agreement:

Beware Of Adjustments On Closing For Your New Construction Home

Signing an agreement for a pre-construction home often involves some additional "adjustment" costs that get tacked on beyond the basic purchase price. These extra charges from the builder can really add up, so it's important to understand what they cover.

Common adjustment fees include:

• Enrollment fee for Tarion (which provides new home warranty protection)
• Costs for installing utility meters
• Realty taxes
• Development charges and levies imposed by the municipality
• Miscellaneous fees from the builder like a mortgage discharge fee

If these adjustment costs aren't capped or limited, you could potentially be on the hook for tens of thousands of dollars in surprise expenses when it's time to close on your home. The exact total won't even be known until very close to the closing date.

This is why it's so valuable to have an experienced real estate lawyer review your agreement early on. They can try negotiating reasonable caps or removals of certain adjustment fees. This provides you with clarity on your true costs and helps with budgeting accurately for the closing.

Without those adjusted limits in place, those sneaky adjustment charges could really put a dent in your home-buying finances. Having a lawyer ensures that some controls are put into the contract and that everything is fair and affordable.

Be Aware Of Restrictions Relating to Leasing Your New Home

If you're planning to either transfer (assign) your purchase agreement to someone else or rent out the unit before you officially take possession, be careful. Builders often include restrictions about this in the contract.

Typically, they'll prohibit you from assigning the agreement, leasing the place, or trying to re-sell it until after the final closing date when you officially own it. They may even ban you from advertising or listing the unit anywhere, including real estate sites like MLS.

And if you do want the builder's consent to assign the agreement or rent it out before closing, get ready to pay. There's usually an "administrative fee" you'll owe the builder for their approval, plus legal fees for their lawyer. Combined, these charges can easily run over $10,000!

It's just one of those tricky areas to be aware of in pre-construction contracts. Get your lawyer to clearly explain any assignment or leasing limitations before signing, so you know what you're getting into.

Paying Harmonized Sale Tax (HST) On Your New Build Home

When buying a new construction home, you'll have to pay HST (13%) on top of the purchase price. Some builders roll this into the total price upfront, while others make you pay it separately at closing.

If the HST is already included in the price, builders will usually have a clause stating that any HST rebates you qualify for will go to them instead of you. To get those rebates, you need to be using the home as your primary residence. If for some reason you don't meet the requirements for this rebate, be prepared to pay the equivalent amount out of pocket when finalizing the purchase. 

So in a nutshell - know whether HST is rolled into the price or not, understand the rebate requirements, and be ready to fork over that extra 13% HST value if you don't qualify for rebates. It's a significant added cost to be aware of.

Understanding The Tarion Statement of Critical Dates For New Construction Homes

When signing a pre-construction home purchase agreement, pay close attention to the Tarion Statement of Critical Dates. This lays out tentative closing timelines, including the "Purchaser's Termination Period" - a window where you can back out of the deal if needed.

Builders are allowed to extend these dates to some degree by providing proper notice. Just know that flexibility is built in for them. If the builder ends up delaying your occupancy substantially past those target dates, Tarion (Ontario's new home warranty program) does entitle you to some compensation. However, there's a cap. Tarion only covers up to $7,500 total for delayed occupancy. That's calculated at a daily rate of $150, which maxes out after 50 days of delays.

It's just one of those fine print details to keep in mind when purchasing a pre-construction home and dealing with potential timing extensions from the builder. Work with your real estate lawyer to understand your rights and limitations around delays.

Check To See If There Are Any Occupancy Fees In Your New Home Contract

With some pre-construction homes, there may be an "occupancy period" before you can officially close and take ownership. During this interim phase, you'll essentially be renting the place from the builder while waiting for the final closing.

Each month, you'll likely have to pay an "occupancy fee" which typically covers:

• Interest on the remaining balance you owe the builder
• Condo fees (if applicable)
• Property taxes

On top of that occupancy fee, you'll also be responsible for paying all the utilities like hydro, gas, water, etc.

It's important to understand that these monthly occupancy fees don't go towards the purchase price at all. You're just renting temporarily until you can complete the actual purchase. When your real estate lawyer reviews your agreements, they will explain these fees to you.

Don’t Sign A Pre-Construction Agreement Without Consulting a Real Estate Lawyer

Before signing on the dotted line for a pre-construction home, it's absolutely essential to have an experienced real estate lawyer thoroughly review the builder's agreement. Their trained eye can identify any concerning clauses or unfair terms that could come back to bite you later. Better yet, a good real estate lawyer may even be able to directly negotiate more favourable terms and amendments to better protect your interests. 

If you need a reliable real estate lawyer to carefully review a pre-construction agreement for your new home purchase, reach out to Hukam Law. Our team has expertise and experience in real estate law that will prove invaluable. Contact us at 705-915-0884 or info@hukamlaw.ca. We’ll be in your corner to provide peace of mind when making your major new home purchase.

***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.