Post by: Carly Haynes
Our previous blog post discussed standard condominiums. This week we will offer a discussion on a specific type of standard condominium, phased condominiums.
Phased Standard Condominium Plans
As the name suggests, a phased condominium plan is a condominium plan that is developed and registered in stages. Currently the Condominium Act, 1998 (the “Act”) only allows standard condominiums to be phased. In phased condominium projects, there is one condominium plan which is expanded through amendments to the condominium declaration and description plans, with each new registration constituting a phase as new units are constructed. The condominium plan gradually increases in size as phases are added until the project is complete. This type of project is attractive to builders as they are able to balance sales of the units and registration of additional phases in order to ensure the project does not become over-extended. After each phase is registered the builder can complete the closing of the units in that phase which allows the builder to obtain sales proceeds to assist in constructing the next phase.
The registration of the condominium declaration which brings the first building(s) into the condominium plan is not the first phase. Our office usually refers to this first registration as the Initial Registration. The first “phase “is the next registration after the Initial Registration. Needless to say this causes confusion. Most people quite logically assume the Initial Registration is the first phase. It isn’t.
References in this blog to a “declarant” mean the person/company that registers the condominium. Often the builder is the declarant.
Typically phased condominium plans are made up of town homes but there are many examples of phased apartment building condominium plans and single family home condominium plans.
When considering undertaking a phased condominium project, it is important to note the first phase cannot register until title to the majority of the units in the Initial Registration of the condominium plan are no longer owned by the declarant and the declarant has delivered certain documents to the condominium corporation pertaining to the phase to be registered (this requirement applies to the first phase only, not subsequent phases). Furthermore, a phase cannot be registered until all facilities and services have been installed as required by the municipality to ensure the phase being added to the condominium can function properly even if the planned additional phases are never added to the condominium.
There are specific disclosure provisions for phased condominiums. Section 147 of the Act requires that all purchasers be provided with disclosure statements which provide specific information on phasing, including whether the declarant intends to create one or more further phases, the projected timing of registration of subsequent phases and details regarding units, location of buildings etc.
The Act permits the condominium corporation to apply for injunctive relief or damages if the declarant proposes certain changes to the proposed phase from what was disclosed in the disclosure statement which are “material and detrimental”. This type of application could result in significant delays for a declarant, and as such a declarant who is uncertain about future plans for future phases should fairly and completely disclose all options for the project that the declarant is considering in its disclosure statement to purchasers to reduce the chances of this complication.
A successful injunction application by a condominium corporation does not necessarily preclude the registration of the proposed phase. It may simply mean the proposed phase will have to proceed as a separate condominium. The approval authority may have concerns with this result but if the declarant has carefully drafted the condominium documents with proper cross easements between the registered condominium and the lands being held for future phases the problem should not be insurmountable.
Take Home: Pros and Cons of Phased Condominium Plans
The most substantial benefit of a phased condominium plan is that phasing eliminates the requirement to have all proposed buildings in a standard condominium plan completed before the condominium plan can be registered. This allows a builder to build and close units in segments (and get proceeds of these sales) rather than having to wait for all of the proposed units in the condominium to be constructed before registering the condominium plan and transferring title to purchasers, allowing the declarant to start paying down their construction loan. This can dramatically reduce the amount of the declarant builder’s construction loan as he or she is only borrowing enough at any one time to build part of the proposed development.
A phased condominium can allow a declarant to post less security with Tarion. Rather than having to post security for the whole development (possibly at $20,000 per unit), the declarant is only required to post security for the units in the proposed phase. This is subject to the declarant not entering into any agreement of purchase and sale for units in phases not covered by Tarion.
The only significant drawback associated with phased condominiums is increased costs on multiple fronts for each phase due to the costs related to the registration of multiple phases, including application and approval fees, planner, lawyer, engineer and surveyor fees.
Finally, the individual unit sales agreements cannot be closed until the unit is built and registered within the condominium. As such, in order to justify the costs associated with each new phase, a sufficient number of agreements of purchase and sale need to have been entered into for the proposed units in the new phase. However, it often makes more financial and practical sense to create a phased condominium instead of multiple condominiums.