Toronto real estate: New condo buyers could face big bills at move-in time

Thousands of people who’ve bought preconstruction condos in the City of Toronto over the last two years or so could find themselves faced with an unexpected extra bill when it eventually comes time to move in.

If city council goes ahead with a proposal to double development charges, those extra costs — some $7,671 on the average one-bedroom unit and $10,624 on the average two-bedroom — are likely to land right in the laps of unsuspecting buyers.

“Most new condominium contracts provide that the buyer is responsible for any increased development charges that the developer incurs after the date that the agreement (of purchase and sale) is signed,” says veteran real estate lawyer Mark Weisleder, who writes about real estate law for The Star.

The get-rich-quick mentality that became the hallmark of the condo boom of the last few years may have also left thousands of buyers of preconstruction units vulnerable.

Some buyers became so convinced they could make a quick buck by the time the unit was built and ready to occupy, they didn’t have lawyers even review the complex sale documents and may not know the clause even exists, says Weisleder.

Real estate lawyers have been able, in many cases, to negotiate a cap on any potential increases from developers keen to make the sales targets needed to get bank financing, but others have simply refused to assume the possible risk, he notes.

“I always recommend the cap, and while many developers agree, some developers still refuse to give it.”

While it’s almost impossible to determine exactly how many buyers of preconstruction units could be impacted if city council supports staff recommendations to double development charges, there were more than 20,000 condos in the preconstruction phase across Toronto as Q1 of 2013, according to market research firm Urbanation.

And thousands more are just in the excavation phase and also likely to be impacted. That’s because development charges in Toronto only kick in after the foundation has been poured and the “superstructure” building permit is issued.

“Builders have two choices here — they can pass the added costs on to buyers or they can absorb them. But these proposed increases are so great, they can’t be absorbed in most cases,” says Bryan Tuckey, president of the Building Industry and Land Development Association (BILD), the umbrella group for the development industry.

“It has been brought to the City of Toronto’s attention that there are a number of buyers who will be impacted.”

A city official declined to comment on the issue, other than to say that any increases would likely be phased in over a year, to July, 2014, and are need to cover the costs of city services, from transit to sewers and water mains, that are impacted by every condo project that’s built.

The increases would still leave Toronto development charges below what’s charged in 905 municipalities.

Developers have asked the city for more time to assess the impact and have cautioned that the sudden jump (increases in 2008 were phased in over four years) could further threaten the condo industry, which has already been impacted by softening sales and tougher mortgage lending rules imposed by Ottawa that have knocked many first-time buyers out of the market.

This could knock out more, notes Tuckey.
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