What you need to know about adjustments on new home closings

If you think the price is the only amount you will be paying your builder upon closing your new-home purchase, you should read the fine print of your contract. Or, better yet, have a real estate lawyer review it for you.

Interim occupancy closings

Before the final closing for a condominium, there will be an interim occupancy, where your unit is ready for occupancy, but minor construction in the building is still ongoing and the condominium is not yet registered – meaning there is no legal title for your unit that can be transferred to you.

During the interim occupancy phase, you can move into the unit without paying the balance of your purchase price, but you will pay a monthly occupancy fee. Under the framework of Ontario’s Condominium Act, the occupancy fee is comprised of:

• Interest on the unpaid balance of your purchase price;
• An estimated amount of property taxes; and
• Estimated condo fees.

While many believe that an occupancy fee is another way for developers to extract more money from buyers, builders should not profit from occupancy closings.

Adjustments on closing

Whether freehold or condominium, your builder can charge you for several adjustments on final closing. These costs, which will be presented in a document called the Statement of Adjustments, will range from water and hydro connection fees, new home warranty enrollment fees, to fees for tree planting, driveway paving and development levies.

Development levies can be the most unpredictable, as they can range from hundreds to tens of thousands of dollars, unless the builder agreed to limit them to a specific amount during the negotiation phase of the agreement.

Every new home offer has an adjustment section in the Agreement of Purchase and Sale, and the adjustments are set out, usually in broad strokes or without a specific number attached. Adjustments are supposed to be delineated in the Tarion Addendum, but it never seems to quite happen that way.

As the purchaser, the onus is on you to insist that your adjustments are spelled out. There is nothing worse than coming to closing and being, for example, $4,000 short. No one needs that kind of last-minute pressure when you have a couple of days to close, and you find out you do not have enough money.

Post-closing adjustments

The final closing does not necessarily signify the end of adjustments between a builder and purchaser, because there may be readjustments to some charges well after closing.

If your property has a yard, builders often charge a grading deposit. Often around $1,500, this is money the builder will hold until the municipality assumes responsibility for your subdivision and confirms that the grading on your property complies with the municipality’s approved plans. It may take years for municipal assumption, and once that is done, you may contact the builder to get a return of your deposit. Don’t forget this important step.

Another major adjustment which you will need to follow up on is municipal property taxes. The builder may charge you for an estimated amount of property taxes because your property has not yet been assessed, and taxes are being paid at the vacant land rate. After closing, you will receive a supplementary tax bill, indicating the new assessed amount of taxes for your property. Usually, you will be able to present the new tax bill to your builder and have them readjust for property taxes, since the builder has to pay taxes proportional to their ownership of the property. In most cases, the assessment will mean the builder will pay you back for a portion of your supplementary tax bill. Don’t forget!

The most important thing to understand is – know what it will cost to close. The best way to do that is to understand your adjustments when you get into the deal.