The Interim Occupancy Date
So, you bought a new condo and you got your letter that you can move in. It has the term Interim Occupancy bolded with a move in date. This was the interim occupancy date.
You may be excited, but, for me, that wasn’t a pleasant notice. It was at the time, until I found out that’s when I had to pay the interim occupancy fee, sometimes called the phantom mortgage or phantom rent.
This happened to me around 2003 when I moved in to my first home. It a was a small, new condominium in Toronto. I actually bought the condo about 2 years earlier before it was built and around 2003 is when I moved in.
Apparently in Ontario, paying this phantom mortgage is normal and especially in Toronto. So, what is this phantom mortgage? This part is vague as it happened a long time ago, but, I had to pay the developer some kind of ongoing monthly fee for moving in. If I remember correctly, it was actually more than what my monthly mortgage amount was going to be! That’s right, I couldn’t advance my mortgage yet and so it didn’t pay down my mortgage. This of course was really upsetting. And this is what you should know about phantom mortgages and new condo purchases.
I’d like to share this with everyone so they aren’t caught off guard.
Although I hope real estate agents will inform buyers of this when purchasing a new condominium, since I know the developers don’t.
Since this happened a long time ago and I don’t have friends that have recently moved into a new condo, I did some internet searching to see if this is still happening. And yes, it still is. What’s even crazier is that supposedly this doesn’t happen in BC and possibly other provinces, although I haven’t looked into the other provinces. It’s an Ontario issue.
This interim occupancy fee is a monthly fee for moving into your new condo. It applies to pre-construction condos. I was told by the builder that because the condo was not registered yet, I could not receive title and therefore I could not get my mortgage since without title, I don’t own the condo yet.
To begin with, I purchased a new condo development in Davisville. I put down, I think, $20k.
At that point in time, I don’t have a mortgage as I don’t technically own the place yet.
I did get a pre-approval for a mortgage and knew what my mortgage payments would be.
After the deposit, some time went by and then I got a letter regarding my interim occupancy date and fees.
And after reading this over and over I got conflicted thoughts of being happy I can move it already and pissed I have to pay this monthly fee that doesn’t pay off my mortgage!
I was told by the builder that they didn’t know how long this fee would last because that’s up to how long the city takes to register the condo and get title, or something to that effect. Remember, I’m recalling something that happened to me in 2003.
This fee was maybe around $1,600 per month.
How about that? You have to pay a $1,600 fee indefinitely. I remember saying, how about if I don’t move in so I don’t have to pay this fee. Let me move in when you get title, so that I can get title as well.
Of course, the builder’s smart-ass answer was, well, you want to pay the fee and not enjoy your condo?
Of course not, you moron, I was thinking to myself.
Obviously that wasn’t the point of not moving in. I mentioned to the builder that I didn’t want to pay $1,600 per month in what amounts to rental fees (otherwise I would have just rented) which was more than my monthly mortgage amount was going to be.
Pros of the Interim Occupancy Fee
Anyways, apparently, this interim occupancy fee is a legitimate fee, from a legal standpoint. It’s stupid, but, it’s legal. What irks me is how it’s labelled as a pro on many real estate blogs. Seriously??? I paid $1600 a month even when I don’t want to is a pro? Now that’s the epitomy of a salesperson if you convince people that.
Some of the pros I see on real estate blogs are:
- You can’t expect a free ride
- You can’t live in the condo for free
- Your fee covers maintenance fees which keeps your condo clean and maintained. “Do you want to see your condo become ragged and worn down?”
- Your fee pays taxes
- The builder doesn’t make a profit on the fees (although a prominent real estate lawyer, Bob Aaron explains how they do make a profit even though it’s not allowed)
- The builder has the same goal as you in getting title as quickly as possible
- And a bunch of other nonsense. These “pros” are written by real estate agents who are salespeople. Salespeople know that you should make “pros” catered to the client. The fact that these “pros” don’t cater to the buyer at all means they really have no good explanation so they are spitting out garbage in the hopes that one of them will resonate with you. Seriously, just call a spade for a spade, okay. Don’t give me these garbage answers. Accept that it sucks for the buyer, warn them, and move on.
I mean really, why can’t I move in when the title is ready and it’s livable instead of moving in when it’s declared “livable” but not even completed yet? Why do I have to pay this fee when the city declares it livable even though I don’t own it? This would avoid all the buyer complaints, right? If anyone knows, please share insight into this process in the comments below.
I read on the Tarion website that the intent of the interim occupancy is to allow buyers to move in early.
That’s fine.
And what if I don’t want to move in early? What if I would rather save my $1600 a month and move it when I own the place?
Oh, in that case, we’re going to force this “benefit” on you. It’s the law. That way, it’s still a benefit, right?
Not!
Let’s take this further and use the same scenario with your next biggest purchase, which may be your car.
Car Salesman: Great, you’ve bought your new car, here are your keys. You can start paying us when you drive off with it tomorrow. However, the fees don’t pay off your car, you’re only renting it from us.
Buyer: Wow, thanks! And why aren’t my payments paying off the car?
Car Salesman: Because you don’t technically own it yet. It isn’t registered with the Ministry of Transportation yet, there is a backlog.
Buyer: So, I can take it tomorrow if I pay you a rental fee?
Car Salesman: That’s correct. Plus HST and the interest on the loan I’m using to finish building the car for you.
Buyer: Oh, okay, in that case, I’ll take it after it’s registered with the Ministry.
Car Salesman: Sure, but, you’ll still have to pay me a rental fee, HST, and interest.
Buyer: Why?
Car Salesman: Because the car has been declared “drivable”, even though we still need to add speakers, car mats, back door handles, and the wipers need fixing. There’s no free ride. You can’t have your “drivable” car for free.
Buyer: But, I’m not going to drive it or take it until it’s registered.
Car Salesman: I understand. But, there’s no free ride. (The stupidest and most annoying, bloody answer I read on real estate agents’ websites.)
Buyer: How is it a free ride? I’m not taking the car.
Car Salesman: It’s the law.
Buyer: What the f^%$(#.
Okay, I better stop here before my article gets vulgar.
So the final response was, it’s legal. And that brings me back to, yes, it’s legal, but, it’s still stupid, at least to the buyer. Maybe there is a reason to it, and that’s something I would love to know. Laws can get changed when they are unfair, dated, stupid, or serves a political purpose. I’ve heard other cities and places around the world can do it, why not Toronto?
If you have bought a new condominium, please comment below. Share with me and other readers your experience with the phantom mortgage and interim occupancy. Did it exist for you if you’re outside of Ontario? How long did you pay this fee? Or is this a uniquely Toronto or Ontario issue? This is regarding new, pre-construction homes.
How does Interim Occupancy Work?
According to Tarion (provides the new home warranty program in Ontario), when a building is considered fit for living by the municipality, then the purchasers can move in. And in order for you, the purchaser, to move in, the developer charges a fee composed of 3 components:
- Interest on the unpaid balance of the purchase price of your condo
- An estimate on the municipal taxes for your unit
- Projected common expense contribution
This is when the developer will send you their letter indicating that you can move in. And this is when you will also start paying the fee. And remember, this fee does not pay down your mortgage.
Anyways, after doing a bit of searching online, I did see a comment regarding the banks causing this issue because they advance the loan in installments based on sales in the condominium. If anyone can elaborate on this and how it relates to the phantom rent, please share your comment below.
Final Closing
So, when do you really own the condo? It’s the final closing date. And it’s when the condo can register the building and transfer ownership to you. At that point, you actually own the condo because you have title of your place.
At this time, you can actually get your mortgage and start paying it off. (Related article: How to Payoff Your Mortgage Faster). But, until you get title, you legally don’t own your place yet.
See this recent story below about interim occupancy fees and why this Canadian couple walked away from a $140,000 deposit and felt relieved! All because of crazy interim occupancy fees from their developer, Fusion Homes.
Think about that. How insane must their situation have been for them to feel relieved to give up $140,000? This is the result of interim occupancy fees and current interest rates.
There is a point in the video that a lawyer says “this is rare”. Note that these stupid occupancy fees is not rare, it happens 100% of the time for new construction. What is rare is possibly the magnitude (amount of money) of this situation. I haven’t bought a home in about 12 years, but, after looking into the amount your deposits are insured today, I read on the Tarion website that the insured amount on deposits for homes is up to $60,000 for homes less than $600,000 and 10% for homes over $600,000 up to a maximum of $100,000.
I took a screenshot below from the Tarion website.
Source: Tarion website, Nov. 24, 2023.
As such, I would not put more than either $60k or $100k for a home, depending on the situation, if I were to buy a home.
Personally, after buying a new condo, I would never buy a new condo or home again. I would just buy resale. The risk is too much and dealing with a new home builder is just a pain that I do not want to go through that again. I’d rather sit in those free “90 minute” Florida or Mexican timeshare seminars than deal with a new home builder. New home builders comparatively speaking makes a new car salesman sit in a throne, not just a pedestal.
And regarding the “rare” part, is it really rare or does the real estate lawyer not want to scare anymore buyers away since the market is pretty bad right now. Maybe the amount of lost deposit is rare, but, the frustration of paying these interim occupancy is not rare. Just see all the comments I got below. And my blog is not even popular! I get very few visitors but the few who do come to my site definitely seem to compelled to share their pain regarding interim occupancy fees.
I haven’t even written on this blog for years, except for updating this article today (Nov. 24, 2023) after reading this story.
First sentence from the video: “It is a modern day horror story.”
Not really, it happened to me in 2003. It’s an ongoing horror story.
And notice that the videos from CTV are between 1k and 44k views from a quick look at their videos. When it involves Trudeau it can be around 50k or more. And with Xi (China) and Trudeau it’s over 100k views.
But, this video is over 260k views in 2 days only!
If I have the full asking price of the condo in my hand due to the sale of our home, I will not need a mortgage. Do I still have to pay this phantom mortgage? I can see paying the taxes and condo fees but a mortgage when I can pay it off now. Is that how it goes? We have bought a new build and move in about a year but wonder about this point.
I believe you still have to pay taxes and condo fees, but, not the interest on the builder’s mortgage.
Also, note this article in the Toronto Star by a prominent real estate lawyer. You have to be careful the builder isn’t overcharging you on the property tax component.
https://www.thestar.com/life/homes/2016/02/13/beware-of-overcharges-during-interim-occupancy-period-aaron.html
Feel free to post back here if you had troubles with this as well since The Star seems to have disabled commenting.
Cedric
Hello Tom. Although you may have the funds in hand, as noted in the aforementioned formula, one of the major contributing factors for the interim occupancy fee is calculated based on the net difference between the purchase value and the funds you have on deposit with the builder. Under the circumstances, if you opted for a greater deposit, you may be able to minimize the interest component but would not be able to completely negate the fee due to the other two contributing factors. Our advice would be to discuss this matter with your lawyer to determine your best course of action.
My wife and I purchase a townhouse from Brownstone corporate the site Davenport Village back 2015 move Jan 2017 we pay occupancy fee $2000 month that includes tax and MF is horrible situation is been over 20 month every month the ask montly check don’t know when is going end ,purchase many home before never have this terrible experience,
Almost 2 years is a crazy long time.. Sorry to hear this. I totally understand. I paid for quite a while too, although not as long and not as much.
Not sure why I just remember this. But, what’s interesting to note and to watch out for is that even the secretary might be part of the board for the company.
I remember complaining and talking about issues I had with this fee to the secretary, thinking she was just an employee. I find out later she’s part of the board of the property manager!
Sneaky bunch. Greenwin Property Management.
Where does this money go? Do you get this money back, or put towards your mortgage once full occupancy is passed?
So, that’s the thing – you don’t get your money back. It goes to the developer to pay off their mortgage. Now, you may see all these stupid excuses that “there is no free ride”, the developer doesn’t want to do this, blah, blah, blah. The bottom line is – you don’t get this money back – whatever they tell you.
We just got occupancy this month. and you are correct that the occupancy costs are terrible. I questioned one aspect of the fees which was the taxes. The amount being charged is $760 a month on a condo that is only a 1 bedroom plus den. This works out to $9,120 per year in taxes.
I owed a house with over 5,000 sq. ft. down the street from the condo and paid less than $5,000.
I asked why, The answer was because you are paying the builders taxes (which are commercial rate) your residence was a residential rate. Why should I pay commercial rate when I reside in this unit as my resident?
I realize this is late for replying. But, unfortunately, I have let the website slide. I’m back into it again and I’ll try to stay on top of this site more.
In any case, thanks for sharing. The fact that you paid less on a 5000 sq ft house makes this look so absurd.
I hope enough stories are shared and something good happens with this absurd process of buying a condo and this “phantom mortgage”.
We just bought a condo townhouse. Closing was meant to be this week but it’s been delayed to an unknown date. Builder’s salespeople told us we could take up occupancy and close simultaneously which was perfect for us. Unfortunately, builder didn’t get their ducks in a row in time so now we have to take pay this interim occupancy fee to move in. Surprise! Is there any way to negotiate how much we pay? We’re okay with paying the maintenance fee and taxes but this interest portion just seems bizarre
I purchased a condo in Burlington Ontario ( Park City Condos ) and moved in August 2019, I’ve been paying ghost rent for a year and half. My “ rent” is 2179.00 a month without utilities. It’s absolute robbery by the builders and still no closing date to take title and true ownership. The government needs to step in and regulate this . The building is only 4 floors with less than 100 units and they still have not registered ??? I also want to add there is zero incentive to register as they own the land it’s built on they keep asking for more money. It’s been a terrible year with Covid and no way to save money under this current system . I hope this helps someone to stay away from new builds ( condos ).
Appreciate you sharing.
I’m sorry you are going through this. I know how you feel. It’s robbery and the government needs to fix this registration part of the condo process.
I really hope a reporter picks up on these stories and investigates this further. Purchasing a condo shouldn’t be like this.
I have the bad experience about the intern closing fees. Previously I bought two condos and was allowed by the builders to pay additional deposit in order to reduce the interest component of the occupancy fees. However, my current builder would not allow me to pay additional deposit for the reason that I must make an election if I opt to pay the entire balance of the price when I sign the agreement. While this reason does not apply to my case because I only requested to pay additional 25% instead of entire balance of 80%. The builder is applying the wrong clause to stop me reducing interest charge. This is bullying to its customers.
In addition, my unit is not in a livable condition, the floor of the hallway is not finished with dusty concrete, the tap water smells terrible and looks milky white. The gym and other facilities are still under construction and not available for use, the builder still charges me $735 per month for common expenses, plus monthly tax of $620, which is over stated, and interest, I ended up paying $2900 per month for rent!
The government should regular how the monthly occupancy fees are calculated and charged to home buyers!
Hi Janet, I appreciate you sharing your story with everyone. The more stories, the more transparent this may become. I say MAY, because housing is the only thing keeping our economy going right now. The government will let them get away with anything right now to keep the economy going.
According to an article in the Star:
“Most builders typically calculate the tax component of the interim occupancy fee by taking the purchase price of the unit as shown on the front page of the offer and multiplying it by 1 per cent. The result is then divided by 12 to get the monthly charge.”
…
“The way some builders calculate estimated taxes, however, is not the way the city does it. And the result is a significant overcharge to buyers.
The correct method, which is how the city calculates taxes, is to take the assessed value of the unit, which is typically the purchase price minus the significant HST component, and multiply the result by the city’s official mill rate, which last year was 0.7056037 per cent.”
…
“The correct formula, which I had inserted into an amendment to the agreement, required the purchase price without taxes ($789,720 and not $868,000) to be multiplied by the city’s actual mill rate for 2015 (0.7056037 per cent and not the builder’s 1 per cent). This yielded a reasonably accurate estimate of $5,572 for 2015 taxes — a discrepancy of $2,805.
The purchasers had therefore been overpaying taxes of almost $234 monthly as part of their interim occupancy fees. For the almost 10 months they had been in possession, the tax overpayment was $2,314.”
Source: https://www.thestar.com/life/homes/2016/02/13/beware-of-overcharges-during-interim-occupancy-period-aaron.html
We are trying to delay interim occupancy for my father who is disabled. 2nd floor of a 4 story building. Elevator doesn’t work yet, he has a walker and thus can’t climb the stairs. No handicapped parking. Only 16 outdoor parking spots for 32 units so nowhere to park
Does anyone have any experience in delaying pre occupancy based on “duty of accommodation” or by challenging the local municipality on how this would meet Ontario Building standards or be passed by the Fire Marshall?
This is terrible. I hope someone can help you with this. I’ll see if I can look into it as well.