When you buy a pre-construction condo, it may take a few years before the building is ready and you get to move in.
When it’s time to move in, you might be surprised to learn that you still might not actually own your condo unit (or at least not just yet).
The period between the occupancy date (when you move in) and when the condo the condo’s ownership transfers to you, is known as the "interim occupancy period." During this time, you will pay the builder a fee known as the "interim occupancy fee."
Why Is There an Interim Occupancy Period?
When a condominium is built, ownership in the condo units can't transfer from the builder to the condo buyers until the building is registered with the local municipality.
This process typically takes a while (The average is 6 months, but for some buildings it has taken up to 2 years). Also, since units on the lower floors will be completed months before units on the higher floors, if you are buying a unit on a lower floor, it may take time before the building is fully complete, thus making the waiting period longer for you.
As the building nears completion, the developer will notify owners of the "interim occupancy date" for each unit. The lower the floor your unit is on, the earlier your date will be, and as a result, the longer your occupancy period will be.
How Much is The Interim Occupancy Fee?
The fee during the interim period is generally lower than your monthly costs would be after closing. However, if you are currently renting your home or will not be selling your current home, you will have to carry the cost of two homes. This necessitates planning for your cashflow considerations.
The interim occupancy fee will vary with every building and the type, size and price of the unit, but will generally be calculated using:
- • Interest (calculated on a monthly basis) on the unpaid balance of the purchase price at the prescribed interest rate
- • Estimated monthly municipal taxes for the unit
- • Projected common expense fees for the unit.
Will I Pay Fees Even if I choose Not to Move In Right Away?
During the interim occupancy period, you'll need to pay the builder the fee regardless of whether you've actually already moved into the unit or not.
Can I Rent My Unit To Someone During Interim Occupancy?
During the interim occupancy period, you technically do not “own” the unit. Therefore, if you wish to lease during this stage, you’ll need authorization from your builder (in writing) to do so.
If you are planning to rent your unit, the best time to negotiate the right to rent it during interim occupancy is when you’re first purchasing the condo.
Permission to rent during can be included in your Agreement of Purchase and Sale, if your developer agrees.
Does the Interim Occupancy Fee Count Towards Paying Down My Mortgage?
No it doesn’t. You will only start paying down your mortgage after the interim occupancy period.
Will I Incur Further Fees When Closing My New Construction Condo?
Since new construction condos typically involve two closings (an interim closing and a final closing), your legal fees will likely increase due to the additional work required.
What Can I Do to Better Plan For Interim Closing?
The best way to plan is to get educated (if you’ve read this far, you already met that goal!)
Second, remember to set aside funds to cover your interim occupancy period. While it is hard to predict how long the period will last, planning for at least 12-months of cash flow to cover interim occupancy expenses (especially if you cannot rent the unit), is ideal.
Third, and most importantly, having your purchase and sale agreement reviewed by a lawyer prior to signing is always a good idea and can potentially save you thousands. Deeded offers a comprehensive review of purchase agreements with a quick turnaround. Contact our team to get started.1