Tenancy At Will & New Condominiums

Tenancy at Will, Real Estate Law, Purchase Contract, Home, House, Moving In, Tenants

Tenancy at Will & New Condominiums

Buying and selling residential real estate can be a complex transaction. Due to unforeseen delays, condominium tenancy at will may come into play. This happens when the buyer obtains possession of the property before paying the full purchase price to the seller. In the majority of transactions, unless buyers purchase with all cash (no mortgage), condominium tenancy at will agreements are required. Most of the time, tenancy at will agreements merely safeguard the seller and eviction of a buyer rarely happens. However, there are various situations where tenancy at will is a commonplace problem. This is particularly true for new condominium (“Condo”) purchases. Continue reading to find out how tenancy at will can impact your real estate transaction. If you have further questions, the real estate lawyers at Kahane Law Office in Calgary are happy to help.

What Is Condominium Tenancy At Will?

Often, on delay of the closing of a sale, buyers wish to take possession of the property for various reasons without first paying for it. A regular tenancy at will situation happens when possession of a newly purchase property occurs in advance of the full payment of the purchase price.  Condominium tenancy at will are agreements that allow buyers to access the property, even before the purchase has completed. Specifically, condominium tenancy at will agreements reassure the seller that you will move out if a lender refuses to fund a mortgage. For example, if payment for the condo does not occur in a timely manner. Without such agreements, home buyers may have to wait days or even weeks to take possession of their property.

When Tenancy At Will Comes Into Play?

In general, in order for condominium tenancy at will to commence for the buyer, the cause of delay must sit with the seller, or with the agreement of the seller. Common reasons why the seller could delay closing include:

  • failure to register a subdivision of a property with the Land Titles Office (the “LTO”);
  • inability to provide an updated and compliant real property report;
  • delay of a builder in registering a condo plan; and
  • failure to sign paperwork in time.

Note that if the delay in closing is caused by the buyer, the seller can refuse to provide tenancy at will.

Why Tenancy At Will Is More Common With New Condominiums

When buying a new Condo, condominium tenancy at will is common. This is due to several reasons. For example, there is a delay between submitting a transfer of land for registration of the unit putting ownership in the buyer’s name with the LTO. Pursuant to section 14(3) of the Condominium Property Act, purchase price funds cannot be released to builders without the registration of the transfer of land for the unit with the LTO. Therefore, the transfer of land requires submitting for registration well in advance of the possession day. At times the land titles queue exceeds three weeks. Consequently, it it may not even be possible for  registration to occur prior to the possession day.

Further, the process of registering a transfer of land requires the registration of the condo plan. The condo plan sets out each individual condominium title as well as the common property. Contractually, buyers of new condominiums must take possession of their new condo even if a delay of the registration of the condo plan occurs. Buyers’ take possession under a condominium tenancy at will. Once the registration of the condo plan occurs, the submitting of the transfer of land for registration at land titles happens.

Accordingly, when builders expect a delay when closing, the builder informs the purchaser’s  lawyer about the estimated time of delay. The buyer’s lawyer will then collect tenancy at will “rents”, hold the payments in trust and use the funds for the duration of the tenancy at will if necessary. Unused funds get returned to the purchaser as soon as the mortgage is funded.

Mortgage Funding With New Condos

Most importantly, for newly built condos, mortgages also cannot fund until the registration of the condo plan happens. Registration of the transfer of land and the mortgage occur in the same land titles submission. Thus, the buyer does not pay for both the tenancy at will and the mortgage at the same time. A buyer only starts incurring mortgage interest once the mortgage funds. At that point, the funds are transferred to the builder’s lawyer, ending tenancy at will payments. Consequently, condo purchasers will not be paying more than what they otherwise would pay towards the interest of their mortgage as the tenancy at will payments are equal to the mortgage rate mortgage amount. This, of course, assumes that the buyer is not causing any of the delays. Interest rates for new condo’s when the buyer causes a delay are quite high.

Tenancy At Will Requirements

To secure tenancy at will in Alberta, the buyer’s real estate lawyer must confirm certain things with the builder’s lawyer. These include:

  • an executed transfer back (a transfer putting the property back into the name of the builder) sits on the buyer’s lawyer’s file;
  • the buyer signs a tenancy agreement;
  • no conditions exist for the buyer’s mortgage and the buyer executed the mortgage; and
  • the buyer’s lawyer has the remaining non-mortgage purchase price funds (called the cash difference) to close his or her trust account.

Note: Title insurance does not cure the above issues as it is the Act the does not allow the release of funds to the builder.

Real Estate Transactions Help In Calgary

We understand that buying a newly built condo is exciting. However you may be anxious to move in as soon as possible. However, when delays occur, our team of professional real estate lawyers will be happy to help you with the home buying process. Give us a call at 403-225-8810 locally in Calgary, Alberta, or we can be called toll-free at 1-877-225-8817 for friendly and efficient assistance with your real estate transaction. You can also email up directly here.