Real estate taxes on closing… will you receive an adjustment?

You have moved into your new home, your finances have stabilized… and months later, you get a surprising set of property tax bills.

When closing on a new build condominium or freehold property, you should always be aware that at the time of closing, the taxing authority has not yet assessed your property, so there is no tax being billed or collected on your new home. Months will pass before roll numbers are created for each new property. When the roll numbers are issued to the local municipality, a tax bill will be issued. This includes property tax charges back to the creation date of the new property, so you will receive what are called omit or supplementary tax bills. These charges can often include 12 to 18 months worth of tax obligations. You will also receive a tax bill for the current cycle as well. Most lawyers will brace their clients for this day of tax reckoning.

Agreement to adjust

If you are aware that this is coming, you will recall having been advised that both yourself and the builder signed an “undertaking to readjust” on closing. This is an agreement to adjust any financial matters set out in the statement of adjustments that require correction or adjustment after closing. It is our experience that the property taxes are ripe for adjustment when the accounts are finally issued. At closing, the builder will make an educated guess on the current and future tax situation and adjust accordingly.

As a buyer, you are responsible for property taxes from the day of closing, and the prior owner (the builder) is responsible for property taxes up to the day before closing. When you receive these bills, you have to check your closing documents to make sure that the builder has paid for their portion of the assessed taxes. In some cases, the builder will have taken a credit for payments it has not made or simply adjusted on land value, with an expectation that an adjustment will be called for. The situation will vary, but the point is that you have to check your closing documents against the tax bills to make sure that the builder has paid their share.

Direct payment

For those who do this every day, it is quite simple to determine the correct adjustment once the bills are issued, so most lawyers will welcome calls from their clients to help navigate the situation. A call to the municipal tax department is often required. If it is determined that an adjustment is necessary, builders tend to deal with it very quickly and efficiently with either a direct payment to the tax authority or reimbursement to you, the owner.

It is important to pay attention to tax bills on your new build purchases, and make sure that you are not leaving money on the table. Often, you are entitled to money back.