What Every Pre-Construction Buyer Needs to Know About the Builder’s Agreement of Purchase of Sale
Watch the video to learn about the top 5 things you should review in your pre-construction agreement.
Buying a pre-construction condo is an exciting opportunity, but it also comes with unique risks and considerations. The Agreement of Purchase and Sale (APS) is one of the most critical documents you’ll encounter in the process. Unlike resale transactions, where standard agreements provide some level of predictability, preconstruction APS contracts are drafted by developers and tend to favour their interests. As a buyer, it’s crucial to understand what you’re signing and ensure that the contract aligns with your expectations and financial plans.
In this guide, we’ll break down the key elements of a builder’s APS, highlighting what you need to look out for and how to protect yourself from potential pitfalls.
1. Understanding the Agreement of Purchase and Sale (APS)
The APS is a legally binding contract between you and the builder that outlines the terms of your purchase, including payment structure, timelines, and responsibilities. Since preconstruction purchases involve buying a unit before it’s built, the APS also accounts for potential changes to the project, delays, and additional costs.
Before signing, it’s essential to review the document with a real estate lawyer who specializes in preconstruction to ensure you understand your rights and obligations.
2. Deposit Structure & Protection
One of the first things you’ll notice in the APS is the deposit structure. Unlike resale transactions that require a single down payment, preconstruction purchases involve a series of deposits leading up to closing.
Key Considerations:
Deposit Schedule: Builders often structure payments as follows:
5% at signing
5% in 30 days
5% in 90 days
5% in 365 days
Builder’s Trust Account: Ensure your deposits are held in a trust account, which provides some security in case the project is delayed or cancelled.
Tarion Protection: In Ontario, deposits are protected up to $20,000 under Tarion’s warranty program for condos, ensuring buyers are not left empty-handed if the project doesn’t proceed.
Interest on Deposits: Some builders may agree to pay interest on deposits if the project is delayed significantly—check if this is outlined in the APS.
3. Cooling-Off Period
In Ontario, pre-construction condo buyers benefit from a 10-day cooling-off period, allowing them to cancel their purchase and receive a full refund of their deposit.
Why This Matters:
This period allows you to have a lawyer review the APS for any red flags.
It’s an opportunity to secure mortgage pre-approval and ensure financing is in place.
You can back out without penalty if you have second thoughts.
Note: Freehold homes do not have a mandated cooling-off period, so once you sign the APS, it becomes binding immediately.
4. Additional Closing Costs & Adjustments
Many buyers focus solely on the purchase price but forget about closing costs and adjustments, which can significantly impact the final amount you owe. Builders often pass on various fees that are not included in the base price.
Common Additional Costs:
Development charges (municipal levies and infrastructure fees)
Utility connection fees (hydro, water, gas meter installations)
Tarion enrolment fee (a cost for new home warranty coverage)
Builder’s legal fees and administrative charges
Assignment fees (if you plan to sell the contract before closing)
How to Protect Yourself:
Negotiate a cap on development charges in the APS.
Get a full breakdown of expected costs from the builder.
Ensure your lawyer reviews the adjustment clauses to avoid surprises at closing.
5. Assignment Clause
An assignment allows you to sell your preconstruction contract before closing, which can be beneficial if your circumstances change or the market appreciates.
What to Look For:
Is assignment allowed? Some builders prohibit assignments altogether.
Assignment fees: Many developers charge a fee ($5,000–$10,000+) for assignments.
Approval conditions: Some builders require their approval before an assignment is finalized.
If you think you may need to sell before closing, ensure the APS includes a reasonable assignment clause that allows for flexibility.
6. Occupancy Fees & Final Closing
For condo buyers, there is often a two-step closing process :
Interim Occupancy: You take possession of the unit but do not own it yet.
Final Closing: The official transfer of ownership occurs.
During interim occupancy, you are required to pay occupancy fees, which can feel like rent but do not go towards your mortgage.
Key Considerations:
Length of Interim Occupancy: The longer this period lasts, the more you’ll pay.
Occupancy Fees Breakdown: These usually include property taxes, condo fees, and interest on the unpaid balance of your purchase price.
When is Final Closing? Delays can push this further than expected.
Click here to learn more about the difference between your occupancy date and closing date.
7. Builder’s Right to Make Changes
Preconstruction purchases come with some degree of uncertainty, as builders often retain the right to make modificationsto unit layouts, finishes, and even the building’s overall design.
Questions to Ask:
Can the builder change unit layouts without your consent?
Are substitutions for materials and finishes allowed?
What happens if a promised amenity (e.g., a rooftop pool) is removed?
The APS should outline the extent of permitted changes and ideally provide compensation or alternative solutions if major modifications occur.
8. Construction Delays & Builder’s Extension Rights
Delays are common in preconstruction projects, and most APS contracts allow developers to push the completion dateunder certain circumstances.
Key Considerations:
What is the original expected completion date?
How many extensions is the builder allowed?
Is there compensation if delays extend beyond a certain timeframe?
Under Ontario’s Delayed Closing Warranty, builders must provide buyers with advance notice of any delays and potential compensation if closing is significantly postponed.
9. HST & Rebates
The purchase price of preconstruction condos typically includes HST, but whether you qualify for the HST rebatedepends on your intended use of the unit.
What You Need to Know:
If you are living in the unit as a primary residence, you likely qualify for the HST rebate.
If you are buying as an investor, you must apply for the New Residential Rental Property Rebate (NRRPR) after leasing out the unit. They usually require a signed 1 year lease agreement.
If the rebate is not factored into the price, you may need to pay it upfront at closing and then apply for reimbursement.
10. Cancellation & Termination Rights
In rare cases, builders have the right to cancel the project, leaving buyers without a unit but with a refunded deposit.
Key Considerations:
Under what conditions can the builder terminate the agreement?
Does the APS provide any compensation in case of cancellation?
While cancellations are not common, they do happen, especially in cases where a project does not receive necessary approvals or financing.
Final Thoughts
Buying preconstruction can be a great opportunity, but understanding the APS is crucial to protecting your investment. Always work with a real estate lawyer experienced in preconstruction to review your contract and ensure there are no hidden risks.
By being informed and diligent, you can confidently navigate the preconstruction process and secure a home or investment that aligns with your goals.