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Last week, I went to breakfast with my good friend and economist, Ben Rabidoux, and some folks from the United States East Coast to chat about real estate.<\/p>\n
We covered a lot of ground!<\/p>\n
I always love getting different perspectives on our real estate market, the Canadian economy, the\u00a0world\u2019s<\/em> economy, or just chatting about business in general.<\/p>\n The funny thing about get-togethers like this is that no matter how intelligent the individuals or the group as a collective is, the differences in geography and jurisdiction are always going to create confusion.<\/p>\n Case in point: some of these guys had never heard of the \u201coccupancy period\u201d that exists in the world of new condominium development.<\/p>\n And to be fair, why should they have?<\/p>\n I don\u2019t know of another place on the planet where we sell, build, and transfer residential real estate like this!<\/p>\n Like\u00a0what<\/em>?<\/p>\n How about a brief refresher for those who know what we\u2019re talking about and a quick lesson for those who don\u2019t?<\/p>\n In order to build a condominium in Ontario, the developer will pre-sell units, that don\u2019t yet exist, and when a certain threshold is met (ie. 80%), one of the major banks will finance the project and give the go-ahead to begin construction.<\/p>\n A condominium is a corporation.\u00a0 Or at least, it becomes a condominium at the very end\u00a0<\/em>of the development\u2019s journey.<\/p>\n It takes time and there is a process for the developer to bring the building from a construction site, to a completed tower of individual units with shared amenities, and eventually to a fully functioning corporation that is independent<\/em> of that developer<\/p>\n Essentially, the land and the building were<\/em> owned by the developer, but eventually came to be owned by the individual residents who make up the \u201ccondominium corporation.\u201d<\/p>\n But what happens in the interim?<\/p>\n Oh boy.<\/p>\n That\u2019s where we get to this idea of \u201cinterim occupancy.\u201d<\/p>\n Consider a 40-storey building that\u2019s, rather obviously, built from the ground up<\/em>.<\/p>\n Suffice it to say, that Unit #501 would likely be completed before Unit #1501, which would likely be completed before Unit #2501.<\/p>\n Right?<\/p>\n But when Unit #501 is completed \u2013 and I mean\u00a0deemed<\/em> completed by the developer, the buyer of this unit takes \u201cinterim occupancy.\u201d<\/p>\n No, they don\u2019t yet own it.<\/p>\n No, they can\u2019t put a mortgage on it.<\/p>\n But yes, they take a \u201cpossession\u201d of sorts via this concept of\u00a0interim occupancy<\/em> and begin to pay a monthly fee that\u2019s made up of a phantom mortgage, an estimate of maintenance fees, and an estimate of taxes.<\/p>\n Can the buyer\u00a0refuse<\/em> interim occupancy?<\/p>\n Absolutely not.\u00a0 In fact, refusal could result in the developer deeming a breach of contract and taking the unit back<\/em>.<\/p>\n Here\u2019s the important question at this juncture:<\/p>\n How long does it take to go from interim occupancy to registration?<\/p>\n<\/blockquote>\n That period of time is indeterminate.<\/p>\n The longest I\u2019ve ever heard in Toronto is twenty-six months.<\/strong><\/p>\n So think about that, for a moment.\u00a0 Over the course of twenty-six months, the \u201cbuyer\u201d of the condo, who is not the \u201cowner\u201d of the condo\u00a0yet<\/em> is required to pay a monthly fee to the developer, but\u00a0cannot<\/em> sell the condo \u2013 because he or she doesn\u2019t own it.<\/p>\n Got it?<\/p>\n That individual is the buyer<\/span> and the interim occupant<\/span> but\u00a0not<\/em> the owner.<\/p>\n Two weeks ago, I received a call from a listener of my podcast who asked if I would help her sell her condo.<\/p>\n Sure thing!<\/p>\n Except she didn\u2019t own her condo.<\/p>\n In fact, she was merely the \u201cinterim occupant\u201d of the condominium in question, and I had to inform her that she wasn\u2019t allowed to sell her condo because she didn\u2019t own it.<\/p>\n She said, \u201cWell, I can assign the condo to a buyer!\u201d<\/p>\n She was right.\u00a0 Technically.\u00a0 Legally.<\/p>\n But practically, she had paid about $1,700 per square foot for the condo in pre-construction several years ago, and the condo wasn\u2019t worth anywhere near that today.<\/p>\n Even\u00a0if<\/em> she could find somebody who would buy her assignment, which I don\u2019t think she would, she\u2019d be looking at a loss of $150,000 plus costs.<\/p>\n I told her, \u201cMy best advice, if you don\u2019t want to secure a massive net loss, is to keep the condo for a year, or two, or three.\u00a0 Lease it out, lose a few hundred bucks per month, but avoid a catastrophic loss by doing so.\u201d<\/p>\n Don\u2019t even get me started about the price that was paid in pre-construction.\u00a0 You know I\u2019ve\u00a0never<\/em> sold a pre-construction condo in twenty-one years in this business, so as you can imagine, the idea that somebody paid $800,000 for a one-bedroom condo in 2019 doesn\u2019t sit well with me.<\/p>\n Her unit was on the 11th floor of a 60-storey building in downtown Toronto, and she had just been notified by the developer that her unit was complete and that she would be required to take interim occupancy in a few days.<\/p>\n So did that mean that\u00a0everybody<\/em> in the building was going to be taking interim occupancy in a few days?<\/p>\n No.<\/p>\n Owners of units on the 12th floor, 13th floor 14th floor, and all the way up to the 60th floor weren\u2019t taking interim occupancy at the same time.<\/p>\n Why not?<\/p>\n Well, the building is still an active construction site!<\/p>\n \u201cInterim occupancy\u201d was being given a floor-by-floor basis, and just as interim occupancy had been given to buyers of units on the\u00a0tenth<\/em> floor last week, this week, it was buyers of\u00a0eleventh-<\/em>floor<\/span> units.<\/p>\n I\u2019m not actually sure if every floor was entering interim occupancy on a\u00a0weekly<\/em> basis, but even if they were, it meant to get up to the sixtieth story of the building, it would take another thirty-nine weeks!<\/p>\n I told my new friend, \u201cYou\u2019re required to start paying your interim occupancy fee as soon as you get the keys next week and you\u2019ll want to rent this unit as soon as possible in order to offset that cost.\u00a0 You\u2019re likely looking at anywhere from 6-18 months until the building is\u00a0registered<\/em>, then you\u2019ll own it, and then you can do with it what you please.\u201d<\/p>\n She asked if my team would handle the listing and leasing and I agreed.<\/p>\n I pulled in\u00a0Matthew<\/em> from my team and had him take the lead, and two days later, Matthew came into my office looking puzzled.<\/p>\n \u201cDave, something is\u00a0up<\/em>.\u00a0 I need your input on this\u201d<\/p>\n I assumed that Matthew wanted my advice on how to keep a happy, healthy marriage, but alas, he was talking about real estate.<\/p>\n \u201cAll the listings in this building are canceled after only a few days,\u201d he told me.\u00a0 \u201cThe history on MLS shows a ton of units being listed<\/em> but nothing is shown as\u00a0leased<\/em>.\u201d<\/p>\n That was definitely odd.<\/p>\n \u201cMy spidey-sense is tingling,\u201d Matthew said, and I assumed that he was referring to his disappointed new bride coming home to the condo to find that the dishwasher hadn\u2019t been unloaded, but alas, he was referring to a situation that he had encountered in the summer of 2024.<\/p>\n Last year, Matthew was asked to lease a condo that was\u00a0also<\/em> in the interim occupancy period.<\/p>\n The condo belonged to a good friend of his from school who had actually intended to live in the condo, but who moved to the United States for work and thus required our help finding a tenant.<\/p>\n Matthew listed the property for lease on the MLS system but within two days, he received an email from a law firm.<\/p>\n It was essentially a \u201ccease and desist.\u201d<\/p>\n The letter was from the condominium developer\u2019s law firm who told us that, under no uncertain terms, we were allowed to advertise the property for lease on MLS.<\/p>\n Matthew brought this to the attention of his friend and client who, unfortunately, had absolutely no idea what this was about.<\/p>\n After investigation, we determined that in the very lengthy, very iron-clad Agreement of Purchase & Sale that the developer had his friend and client sign six years ago when she bought in pre-construction, there was a clause saying that the developer reserved the right to limit advertisement of the condominium for lease during the occupancy period.<\/p>\n In this case, \u201cadvertising the listing\u201d meant listing it on the MLS system.<\/p>\n The interim occupants were allowed to lease their units, but they could\u00a0not<\/em> post the units for lease on MLS.<\/p>\n There are other places to list properties for lease, of course.\u00a0 But MLS is king, and I personally don\u2019t welcome the caliber of inquiries or prospective tenants that one would find on Facebook Marketplace.<\/em><\/p>\n Matthew was able to find a tenant who was interested in leasing the unit, but we encountered yet\u00a0another<\/em> snag in the process.<\/p>\n The developer\u2019s lawyer sent us the following:<\/p>\n \u00a0<\/p>\n There are several steps that need to be followed in order to lease during interim occupancy.<\/span><\/p>\n Please note: you are not permitted to post your listing on MLS & No Short-Term Listings Permitted (minimum 12-month lease term & no early termination clause)\u00a0<\/strong><\/p>\n Tenant Requirements:<\/p>\n Once these are gathered, you would send these to {developer\u2019s email address}<\/p>\n They will then review and once approved provide the owner two documents for signing:<\/p>\n Once these are signed and returned to sales, they will email property management and copy the owner\/agent that they are confirmed able to lease, and include the completed PDFs. Property management will always require the signed lease and completed Resident Information Form.<\/p>\n \u00a0<\/p>\n This was fascinating!<\/p>\n And it was the first time that we had seen this; surely not the last.<\/p>\n The developer was allowing the interim occupants to lease their condos, however they could not advertise the units on the MLS system, and the developer was reserving the right to \u201capprove\u201d prospective tenants.<\/p>\n Say what you want about the \u201cfairness\u201d herein, but don\u2019t forget:<\/p>\n The developer still\u00a0owns<\/em> the condo during interim occupancy.\u00a0 The buyer isn\u2019t the owner \u2013 yet.<\/p>\n<\/blockquote>\n The stringent criteria included above, plus the complicated process required, might result in a significant thinning of the tenant pool.<\/p>\n But it doesn\u2019t matter.<\/p>\n At least, not to the developer.<\/p>\n The developer set the \u201crules\u201d back when buyers purchased in pre-construction sales centres and the developer is still the legal\u00a0owner<\/em> of the condo.<\/p>\n Now, back to Matthew\u2019s \u201cspidey-sense\u201d for a moment and you can see why he was having flashbacks to this experience.<\/p>\n Matthew had noted that about twenty properties in the building had been listed for lease,\u00a0all<\/em> of them on the 11th floor or lower, and\u00a0all<\/em> of them had been terminated.<\/p>\n \u201cI think it\u2019s quite clear that the builder won\u2019t allow any advertising on MLS,\u201d Matthew told me, but if only it were that simple.<\/p>\n Folks, what I\u2019m about to explain to you is something that you\u2019re going to label \u201cunfair,\u201d and while I agree, I want to get out ahead of this by reminding you of this concept of \u201cpersonal responsibility.\u201d\u00a0 More on that in a moment\u2026<\/p>\n Matthew and I called a few of the listing agents for units in the building, which had been terminated, and we learned that it wasn\u2019t\u00a0only\u00a0<\/em>that the developer wouldn\u2019t allow advertising of lease listings on MLS.<\/p>\n No.<\/p>\n It was way, way worse.<\/p>\n In this building, the developer wouldn\u2019t allow any of the units to be leased out during the occupancy period.<\/p>\n<\/blockquote>\n Yup.<\/p>\n It\u2019s an absolute financial disaster for the buyers of pre-construction units in that building who now have absolutely zero way to recoup costs associated with the \u201cinterim occupancy period.\u201d<\/p>\n Those buyers, er,\u00a0occupants<\/em>, would be paying $2,500 per month in occupancy fees, but they weren\u2019t allowed to\u00a0lease<\/em> the units at the same time.<\/p>\n As I said above, you\u2019re going to call this \u201cunfair.\u201d<\/p>\n It is.\u00a0 Absolutely.<\/p>\n But then again, it\u2019s not.\u00a0 Not by definition.<\/p>\n In fact, by definition, it\u2019s completely fair.<\/p>\n Why?<\/p>\n Because this was noted in the boiler-plate purchase agreement that every buyer signed six years ago!<\/p>\n<\/blockquote>\n \u201cWho reads that stuff?\u201d you might ask.<\/p>\n But this is exactly the problem!<\/p>\n Most pre-construction buyers don\u2019t read the contracts, or if they do, they don\u2019t understand it.\u00a0 Many of them don\u2019t use a buyer agent because they lack the experience to know they need representation, or because they feel they\u2019re getting a \u201cdeal\u201d by purchasing through the developer\u2019s agent.<\/p>\n Worse still is that during the government-mandated ten-day cooling off period, many of these buyers don\u2019t hire a lawyer to read the purchase agreement for them.<\/p>\n So in the end, every buyer in this pre-construction project agreed at the time of signing that they would\u00a0not<\/em> be permitted to lease out their unit during the interim occupancy period.<\/p>\n It\u2019s not ideal.\u00a0 But it\u2019s not, in any way,\u00a0unfair<\/em>.<\/p>\n So let\u2019s get back to the plight of our cold-caller for a moment.<\/p>\n She can\u2019t sell the condo because:<\/p>\n a) It\u2019s worth $150,000 less than she paid So she has no choice but to take interim occupancy and pay $2,500 per month.<\/p>\n But she can\u2019t\u00a0lease<\/em> the condo in the meantime, and registration is likely anywhere from six to eighteen months away.<\/p>\n Best-case scenario, the condo is registered in six months and she only has to pay $30,000 in occupancy fees that are completely lost.<\/p>\n Worst-case scenario, the condo is registered in eighteen months and she\u2019s out an additional $90,000 in occupancy fees.<\/p>\n I have a feeling that she, along with many other people in the building are going to illegally lease their units, and I personally don\u2019t blame them.<\/p>\n And what\u2019s to lose?<\/p>\n\n
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b) She\u2019s in the interim occupancy period and can\u2019t sell, but could\u00a0assign<\/em>
c) Nobody is buying assignments<\/p>\n