Can't Close Your Pre-Construction Condo? Your Options

Greg Weedon

2 hours ago

4 min read

Pre-construction condominium agreements are often signed years before closing. By the time the builder sets a final closing date, interest rates, values and personal finances may have changed. If you are worried that you cannot close, you usually have more options before the closing date than after it.

Early warning signs

The problem rarely appears for the first time on closing day. Watch for these signals well in advance:

your lender's appraisal comes in below the purchase price
your mortgage pre-approval has expired, or your lender has changed its terms
your income, employment or credit has changed since you signed
you were relying on selling another property that has not sold
the builder's estimate of closing adjustments is higher than you budgeted

If any of these apply, start working on the problem at once. Most solutions take weeks to arrange, and some depend on the builder's cooperation.

Talk to the builder early

Builders generally prefer a closed sale to a dispute. Some will consider an extension, a change in unit, or other accommodations, particularly if they hear about the problem well before closing. A purchaser who raises the issue early and in writing is usually in a better position than one who stops responding.

Be careful about what you say. Telling a builder that you will not close may be treated as an anticipatory breach, which can allow the builder to terminate and claim damages before the closing date. It is worth getting advice before you send that message.

Assignment

An assignment transfers your rights under the agreement to another buyer before closing. Whether you can assign depends on the agreement. Many pre-construction agreements prohibit assignment or require the builder's written consent, and builders commonly charge an assignment fee.

Assignment terms vary widely. Some agreements restrict marketing the unit on the MLS, require the assignee to be approved, or keep you liable to the builder if the assignee does not close. An assignment can also have income tax and HST consequences, so tax advice is often needed alongside legal advice.

Alternative lenders

If a major bank will not lend the full amount, other options may exist. Credit unions, alternative or "B" lenders and private lenders may approve financing on different criteria. The trade-off is usually a higher interest rate, lender fees and a shorter term.

A mortgage broker can canvass these options. Make sure the commitment is in place, and its conditions can be met, before the closing date. A family member's help or a co-borrower may also close a gap, though each brings its own legal and tax issues.

An extension or a mutual release

Some builders will agree to a short extension of the closing date, often for a fee or on other conditions. Any extension should be documented in a signed amendment to the agreement, not left to an email or a phone call. Interest or other charges during the extension should be clear in writing.

In some cases a builder may agree to a mutual release, ending the agreement on negotiated terms. A release usually requires you to give up some or all of your deposits. Read it carefully, since it should release you from any further claim by the builder, and not only end the agreement.

Occupancy before final closing

In many condominium projects, purchasers take interim occupancy before the condominium is registered and the final closing occurs. During interim occupancy, section 80(4) of the Condominium Act, 1998 caps the monthly occupancy fee at interest on the unpaid balance at the prescribed rate, an estimate of municipal taxes, and the projected common expenses. The agreement usually requires any remaining deposits on occupancy, and the balance of the price, usually funded by your mortgage, is due on final closing, which may be months later.

If you simply do not close

If you do not close, the builder will usually terminate the agreement and keep your deposits. The builder can then resell the unit and sue you for any further loss, such as a lower resale price, carrying costs and resale expenses. These claims can exceed the deposits by a wide margin, especially in a falling market.

Missing a deposit installment is itself a default, with similar consequences. Our article on what happens if you do not pay a real estate deposit explains why an unpaid deposit does not undo a binding agreement.

You may also have arguments of your own. Builders sometimes fail to follow the agreement, the Tarion Addendum or the Condominium Act, or they demand closing adjustments they are not entitled to. Builders' extra charges have been the subject of court challenges in Ontario, and a review of your file may reveal points worth raising.

Get advice before the closing date

Once the closing date passes, most of the options above narrow or disappear. A review well before closing can confirm what the agreement allows, whether the builder has complied with its obligations, and which route carries the least risk. It also lets you approach the builder or a lender with a clear plan.

How we can help

We advise purchasers on pre-construction closings, assignments, extensions and releases, and we act in real estate litigation when a closing fails. If you are concerned about an upcoming closing, please contact us while there is still time to act. Information about our real estate practice is also on our website.

General information only, not legal advice. Every matter turns on its own facts.