Developers Beware: Don’t Forget Your Critical Dates – Or Your Deal May be Dead!

Part 3 – The POTL Factor*

Post by: Meghan MacDonald

This is the final post in the series on the potential issues surrounding the Critical Dates in the Tarion Delayed Occupancy/Closing Forms.

Part 2 discussed the importance of making sure that Critical Dates are filled in on the Statement of Critical Dates** in all circumstances.  This includes situations where there is no occupancy period because the unit being sold is located in a condominium that has already been registered.

Part 3 expands on the confusion around using Tarion’s Occupancy Forms for sales of units in registered condominiums and the obligation to use Tarion’s Limited Use Freehold Occupancy Forms for sale agreements with respect to Parcels of Tied Land to Common Elements Condominium plans.

A Parcel of Tied Land is not a condominium unit.  A Parcel of Tied Land is a freehold parcel of land that is “tied” to a Common Elements Condominium plan.  A Common Elements Condominium plan consists only of common elements (for example, a shared roadway, park, recreation center, etc.).  The purpose of the Common Elements Condominium structure is to provide a mechanism for orderly governance, maintenance and repair of shared common elements and for the orderly collection of the costs on account thereof from the owners of the Parcels of Tied Land.

In almost all cases the Common Elements Condominium plan is registered long before the sale of the freehold homes that are tied to the condominium are constructed or ready for occupancy.

The sales of the homes that are Parcels of Tied Land to the Common Elements Condominium plan are typically closed as regular home sales with no period of occupancy.  Occupancy is only provided at the time of the sale closing, not before.

It was therefore surprising when, earlier this year, Tarion introduced new Limited Use Freehold Occupancy Forms designed specifically for agreements of purchase and sale for Parcel of Tied Land.  The accompanying regulations require the use of these Forms for Parcels of Tied Land.  The use is mandatory.  The regulations do not contemplate using a Freehold Closing Form if there is no period of occupancy contemplated by the sale agreement.  This appears to be based on the misguided assumption that periods of pre-closing occupancy are routine in the sale of Parcels of Tied Land.

Prior to the recent amendments to the regulations, Freehold Closing Forms were being used for Parcels of Tied Land.  This made sense as the Parcels of Tied Land were almost always sold in the ordinary course without any period of occupancy before sale closing.

Even though occupancy is a non-issue with virtually all Parcels of Tied Land and the inclination may be to continue to use the Freehold Closing Forms because there is no occupancy period for these homes, the appropriate Limited Use Freehold Occupancy Form must be attached to every agreement of purchase and sale for a Parcel of Tied Land and the Critical Dates must be filled out (for the reasons outlined in Part 2).  This must be done even though the Limited Use Freehold Occupancy Forms don’t really apply to the reality of the sales of Parcels of Tied Land because the Limited Use Freehold Occupancy Forms deal with occupancy instead of closing.

If the appropriate Limited Use Freehold Occupancy Form is not attached with the Critical Dates filled out, the Purchaser can kill the deal.

It is also worth mentioning that Tarion included a new Schedule C to the Limited Use Freehold Occupancy Forms that sets out the terms that will govern the occupancy period.  The inclusion of Schedule C in the Parcel of Tied Land Forms seems odd for two reasons:

  1. as previously mentioned, most Parcels of Tied Land don’t have occupancy periods; and
  2. Schedule C wasn’t included in the updated Condominium Occupancy Forms.  It seems illogical that this Schedule was added to the Forms for Parcels of Tied Land where there is rarely any period of pre-closing occupancy, but not added to the Condominium Delayed Occupancy Forms where occupancy prior to closing is fairly routine.

Registered Condominium Units

Once a condominium is registered most agreements of purchase and sale do not require pre closing occupancy as buyers can move straight to closing.  However, as the agreement of purchase and sale is still with respect to a condominium unit the only choices for Tarion Schedules are the Condominium Delayed Occupancy Forms.  In our view, Tarion should have allowed the use of the Freehold Delayed Closing Form for registered condominium units and Parcels of Tied Land where the agreement of purchase and sale does not contemplate any period of occupancy.  However, they have failed to do so.  Hopefully this is remedied.

Recommendation

Since the Common Elements Condominium plan will in most cases likely already be registered at the time the sale agreement for a Parcel of Tied Land is signed, it is suggested the builder simply fill in the home’s closing date for all Critical Dates and put an outside occupancy date as far past that as possible because if you miss that date the deal will be terminated.  In the unlikely event a builder is contemplating a period of occupancy for a Parcel of Tied Land, the appropriate Limited Use Freehold Occupancy Form needs to be filled out on the same basis as the Condominium Occupancy Forms when choosing dates.  However, as noted, this does not happen very often.

With respect to sale agreements for registered condominium units where no period of pre-closing occupancy is contemplated we suggest the same practice in completing the Condominium Occupancy Form.

Bottom Line: never underestimate the importance of attaching the correct Tarion Occupancy/Closing Form to agreements of purchase and sale and filling in the Critical Dates on the Statement of Critical Dates even if the Form speaks to occupancy when no occupancy is contemplated.  If the regulations call for an occupancy form even though no occupancy is contemplated the builder must comply and use the occupancy form.  If done incorrectly your deals could be in jeopardy.

* Part 3 of a 3 part series on the potential issues surrounding Tarion’s Critical Dates.

** The Statement of Critical Dates is part of the Tarion Delayed Occupancy/Closing Warranty Form that must be attached to the agreement of purchase and sale.

 

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