Pre-Construction Condo Deposits: How They Are Protected in Ontario

Buying a pre-construction condo usually means paying deposits in stages, often years before you can move in. It is natural to wonder where that money sits and what happens to it if the project stalls.

In Ontario, two layers of protection generally apply: trust rules for the builder and Tarion deposit coverage. This article explains how they fit together and where the gaps are.

Where your deposit is held

Ontario condo builders generally must hold the deposits and other money they receive for a condo project in trust. That means the money is not supposed to be treated as the builder's own operating cash.

For deposits above $20,000 per unit, condo vendors must comply with the Condominium Act by using a separate trust account, the trust account run by the escrow agent, or excess deposit insurance. Your agreement and the disclosure documents should tell you which approach applies to your project.

What Tarion covers

For a new condo unit, Tarion protects deposits and other payments, including money paid for upgrades and extras, up to $20,000, plus a limited amount of interest that has built up.

Since January 2018, this also covers other payments you make, such as upgrades and extras. It applies where the builder goes bankrupt, fundamentally breaches the agreement, or you rescind before closing, and the deal does not close.

If a condo builder ends the agreement, it must return your whole deposit within 10 days.

When money may not be protected

• Payments made to reserve or hold a unit before the purchase agreement is signed have no Tarion deposit protection.
• Freehold homes follow different limits from condo units. For agreements signed on or after January 1, 2018, freehold deposits are protected up to $60,000 if the price is $600,000 or less, and above that up to 10% of the price to a maximum of $100,000.
• Amounts above the Tarion limit are held in one of three ways: a separate trust account, the escrow agent's trust account, or excess deposit insurance.

Because a reservation payment sits outside Tarion protection, ask what happens to it if you decide not to sign. The answer depends on the wording of the reservation paperwork, and a lawyer can review it.

Your right to back out early

A buyer of a pre-construction condo has a 10-day cooling-off period to rescind the agreement of purchase and sale. The agreement does not bind you until you receive both the disclosure statement and Ontario's Residential Condominium Buyers' Guide.

You may also rescind after a material change in the information in the disclosure statement. Tarion deposit protection applies if you rescind before closing and the deal does not close, so it is worth keeping track of these windows so they do not pass unnoticed.

Delays, interim occupancy and closing costs

Deposit protection is only one part of the money picture. A delay on a new condo can lead to Tarion delayed-occupancy compensation of up to $7,500 in total, and living expenses are paid at a fixed $150 a day with no receipts needed. A condo builder that fails to give 10 days' notice of an occupancy delay must pay you $1,500, and changing a closing date generally needs at least 90 days' written notice.

There is an exception while the occupancy date is tentative. The builder may extend it several times without paying compensation, but must give 90 days' notice of each extension. For unavoidable delays, the builder may extend all deadlines by up to the length of the delay. If the unit is not ready by the Outside Occupancy Date, you have 30 days to terminate the agreement. The Tarion Addendum overrides any conflicting terms, and early-termination conditions it does not allow cannot be enforced.

• The interim occupancy fee cannot exceed the total of monthly interest on the unpaid balance of the price at the prescribed rate, the estimated monthly municipal taxes, and the projected common expense fees for the unit.
• Interim occupancy fees apply only during the interim occupancy period. They are not credited to the purchase price, and you owe them whether or not you move in.
• Ownership of a new condo unit can only transfer once the condominium corporation has been registered, and interim occupancy fees stop when title transfers.

Condo builders must list extra charges and expected adjustments to the final price, with dollar values, in Schedule B of the Tarion Addendum. If an adjustment such as development charges could produce rebates, the agreement must say how those rebates will be shared. The vendor pays the Tarion enrolment fee, but vendors commonly pass it on to buyers in the statement of adjustments on closing, and not all vendors do. How this applies to you depends on your agreement, so it is worth confirming with a lawyer.

What to do next

• Keep a record of every deposit: date, amount, who received it and what it was for.
• Separate deposits from payments for upgrades and extras, since both appear in Tarion coverage.
• Confirm in writing how deposits above $20,000 are held.
• Note the cooling-off dates from the day you receive both the disclosure statement and the Buyers' Guide.
• Read Schedule B of the Tarion Addendum for the extra charges and adjustments listed.
• Have a lawyer review the agreement before you sign, especially any reservation payment.

Frequently asked questions