Everything You Should Know about Interim Occupancy in Canada

So you’ve just received the keys to your brand-new pre-construction condo—exciting times! But you’re probably confused about how interim occupancy works and what you need to do to manage this phase. 

Interim occupancy can be a bit of a puzzle if you’re new to the world of pre-construction condos. But fear not! In this blog, we’ll guide you through what it includes and how long it usually takes, and provide you with some pro tips for managing this transitional time.

Key Points

• Interim Occupancy allows you to move into your pre-construction condo before the building is fully completed and registered. 
• Interim occupancy fees cover taxes, utilities, and maintenance, generally 20-30% less than future mortgage payments. The duration ranges from weeks to over a year, depending on construction and registration.

What is Interim Occupancy?

Interim occupancy is a transitional period during purchasing a pre-construction condo where the building is not officially registered or completed but you get to move into your new home. 

Keep in mind that the city must first confirm that the building is safe for occupancy, and then you’ll be allowed to move in. There will be some formal procedures like completing the building’s final paperwork and official registration with the municipality which take more time. Meanwhile, you are allowed to start settling in, but the title of ownership won’t be transferred to you until the entire building is fully finished and registered.

Occupancy Date Meaning

Before moving into the main part, let’s address a common misperception about the occupancy date. The occupancy date is the day you receive the keys to your condo and can start living in your new unit, even though the building isn’t fully complete. So, don’t confuse the occupancy date with the final closing date which is when you actually gain ownership of the property.

What Are the Benefits of Interim Occupancy

Here are 3 reasons why you should opt for interim occupancy:

• You can start living in your new home sooner, even if the building is still under construction. This means you don’t have to wait for the entire project to be completed before you move in.
• Interim occupancy lets you get comfortable in your new unit, arrange your furniture, and more importantly, explore your new neighbourhood before the final closing. 
• Instead of facing a rush to move everything at once, you can gradually bring in your belongings and settle in at a more relaxed pace.

Interim Occupancy Agreements

Now let’s talk about the legal side of things. Before entering the interim occupancy phase, you’ll receive an agreement that outlines the terms and conditions under which you can move into your new unit. Here’s what it includes:

• Occupancy fees 
• Responsibilities and rights
• Duration and conditions
• Insurance

We’ll delve into each of these points in more detail.

Interim Occupancy Fees

Interim occupancy fees generally cover three main areas—though details can differ from one agreement to another.

• Occupancy Costs: These fees typically include payments for property taxes and utilities. Since the building isn’t officially registered yet, the builder usually provides an estimate figure.
• Construction Loan Interest: During the interim period, the builder often finances the construction through a loan. The interest on this loan is passed on to you as part of your occupancy fees. 
• Maintenance and Common Area Fees: You may also be required to pay for maintenance costs and fees for common areas, such as lobbies, hallways, and amenities. 

One thing to keep in mind is that interim occupancy fees are generally paid monthly, similar to rent. They are separate from your final purchase price and mortgage payments, so you have to factor in these additional costs while you wait for the official transfer of ownership.

How to Calculate Interim Occupancy Fees?

Occupancy fees can vary quite a bit depending on where you are in Canada. Each province has its own way of calculating these fees. But most of the time, it’s the same formula.

In most cases, occupancy fees are figured as a percentage of the remaining balance on your purchase price, minus any deposits, maintenance fees, and estimated property taxes. During the occupancy period, you’ll handle condo fees (or higher costs for Freehold townhomes that don’t have condo fees), property taxes, and mortgage interest, but not the principal. Usually, these fees are about 20-30% less than what you’ll pay once your mortgage kicks in. 

For example, if you purchase a condo for $500,000 and have a remaining balance of $400,000 after deposits, and your estimated property taxes and condo fees amount to $500 per month, your occupancy fee might be calculated at 1.5% of the outstanding balance. This would amount to $6,000 annually or $500 monthly. If your future mortgage payments, including principal and interest, are expected to be $2,000 per month, your occupancy fees would be about 25% lower, making them $1,500 per month during the occupancy period.

Interim Occupancy Duration

This is the tricky part! There is no fixed duration for the interim occupancy because it ends when the building is officially registered and final ownership is transferred. An interim occupancy period can range from a few weeks to over a year, with the average wait time being 2 to 12 months. 

Moreover, there are a few factors that might affect the duration of the interim occupancy:

• Construction delays are probably the most common reasons.
• Building registration also involves thorough inspections and paperwork, which can affect how long you’ll be in interim occupancy.
• Floor and unit position is another consideration. Sometimes, units on lower floors might be ready for occupancy sooner than those on upper floors. So even in one building, there might be different interim periods for various units.

If the interim occupancy period extends beyond the expected duration, you should contact the builder for an updated timeline and documentation of the delay. Make sure to consult your lawyer if the delay is significant or unresolved. 

Understanding Your Warranty Coverage During Interim Occupancy

Another important issue to understand is how your warranty coverage works. During interim occupancy, your new condo is still under construction, which means you need to be aware of what kind of warranty coverage is in place.

In Canada, most new condos are covered by a home warranty program, such as Tarion in Ontario, but there are similar programs for other provinces as well. 

Keep in mind that builders in Ontario, Quebec, British Columbia, and Alberta are legally required to provide new home warranties. For other places, it’s not a legal requirement so it’s up to you whether you want a home warranty for your new condo or not.

Here’s how these warranties typically work:

• One-Year Warranty: Covers defects in workmanship and materials. If you notice issues with finishes or fixtures, these are addressed under this warranty. A one-year warranty usually costs between 0.5% and 1.25% of the home’s purchase price, with an average of around 0.8%.
• Two-Year Warranty: Protects against defects in major systems like plumbing and electrical, and issues with the building envelope, such as insulation or windows.
• Seven-Year Warranty: Offers coverage for major structural defects that could impact the safety or value of your condo.

Remember that the specifics of each warranty can vary based on local regulations, the type of property you’re purchasing, and the provider, so read the agreement carefully.

How Does the Insurance Work during Interim Occupancy?

Now, let’s review how the insurance coverage is managed during the transitional phase. During interim occupancy, the builder’s insurance typically covers the property. But, we encourage you to confirm it and understand what’s included.

Keep in mind that since you’re not the official owner yet, you may need tenant insurance to cover your belongings and any potential liabilities. Once the condo is complete and registered, you transition to final ownership which means you’ll need to update your coverage and switch it to a personal condo insurance policy.

Final Tips for Buyers

Here are a few simple tips to make sure your transition into your new pre-construction condo goes as smoothly as possible.

• Before anything else, read your interim occupancy agreement from top to bottom. Pay close attention to the terms, fees, and your responsibilities as an occupant. We highly recommend consulting our advisory team as well as your lawyer to ensure there’s no problem with the document. 
• Conduct a detailed inspection of your unit before you move in. If there is any incomplete work or issues that need addressing, make sure to document them and report them to the builder immediately.
• If possible, opt for units on a higher floor because they often have shorter occupancy periods. 
• Look into the developer’s reputation and reviews to ensure you’re working with a reputable builder. We can help you connect with reputable developers who can ensure a smoother and potentially shorter occupancy period.
• If possible, negotiate the occupancy fee with the developer. Research the market value of similar units, consider the developer’s costs and efficiency, and look for concessions, such as a lower deposit amount or a firm closing date, if negotiating the fee itself isn’t successful.
• Finally, make sure you’re in the loop about the construction progress and the timeline for final closing. 

Bottom Line

Hopefully, by now, you have a better understanding of the meaning of occupancy date and how interim occupancy works. But you might still feel overwhelmed with all the legal terms and procedures. Don’t worry! we are here to help.Our team has strong relationships with top developers across Canada, giving you VIP access to the latest listings, promotional packages, and detailed floor plans. Contact us today and we’ll help you find your dream home.