What is the interim occupancy, and occupancy fee.

What is the interim occupancy, and occupancy fee.

When it comes to buying new pre construction properties, things can get complicated and are quite often full of surprises, items which are often misunderstood are the interim occupancy period and the occupancy fees.

What is the interim occupancy period?

The interim occupancy period is when the buyer can move in and enjoy the property, the project hasn’t been fully completed, and the title hasn't been transferred. The occupancy period starts when the unit is deemed fit for occupancy by the building department.

Does the interim occupancy period apply to every pre construction project?

No, the interim occupancy period doesn’t apply to freehold properties, it applies to newly constructed condominiums, condominium town homes and can apply to POTL properties.

How long does the occupancy period last?

The occupancy period can last anywhere between a few weeks to two years or even longer. In smaller projects the average time should be shorter than for larger projects with hundreds of units. For many condos, especially high-rise construction, the low floor units may be ready to be occupied a long time before the top floor units are ready for occupancy.

What is the occupancy fee?

Since the buyer doesn’t own the unit yet, the occupancy fee is essentially a rent payment from the purchaser (future owner of the property) to the developer. No part of the payment is applied towards the principal of the mortgage.

How is the occupancy fee calculated?

There are three essential components that make up the total occupancy fees:

• Estimated property tax. At this point the property taxes have not been assessed yet, the amount is an estimate.
• Monthly condo fees. The monthly condo fees are based on the budget estimated by the developer.
• Interest expense on the balance owing. The balance owing is the difference between the selling price of the unit and the deposits made to date. The calculation is explained below.

How is the interest expense calculated?

As already mentioned above, the interest expense is calculated on a balance owing which is a difference between the purchase price and the deposits made.

The interest used is per Bank’s of Canada 1 year conventional mortgage which currently sits at 7.84% (as of May 2024).

Sample calculation of monthly occupancy fees.

Let’s look at an example of a $600,000 condo purchase with deposits totaling $100,000 and the remaining balance of $500,000, estimated annual property tax of $2,500 and budgeted monthly condo fees of $450, the breakdown of the monthly occupancy fees will be as follows:

Monthly interest expense:            $3,266

Monthly property tax:                        208

Monthly condo fees:                           450

Total estimated monthly

occupancy fee:                                $3,924

As you can see the occupancy fee can be very significant, the higher the interest environment the higher the occupancy fees, and none of it is applied towards the principal of the mortgage.

Can the builders charge as much as they want?

In short, the answer is no. As per Section 80(4) of the Condominium Act, 1998, the fees can be charged as follows:

If the purchaser assumes interim occupancy of a proposed unit or is required to do so under the agreement of purchase and sale, the declarant may charge the purchaser a monthly occupancy fee which shall not be greater than the total of the following amounts:

1. Where applicable, interest calculated on a monthly basis on the unpaid balance of the purchase price at the prescribed rate.
2. An amount reasonably estimated on a monthly basis for municipal taxes attributable to the unit.
3. The projected monthly common expense contribution for the unit.

As a buyer do I have to pay the occupancy fees?

Yes, the fees must be paid, there is no way to avoid them (without serious legal consequences), and the only way to minimize them is to increase the deposit amount and reduce the balance owing to the builder.

When does the occupancy period end?

The occupancy period will end when the condominium is registered, and the title is transferred to the buyer.

Can I rent out the unit during the occupancy period?

If you don’t plan on living in the unit and want to rent it out, you will need permission from the builder which is either included in the APS or it can be obtained as a separate agreement.

We hope in this blog we’re able to clarify the occupancy period, occupancy fee and how it is calculated, if you have other questions, please let us know.