I recently purchased a condo for a first time condo buyer who had purchased a number of houses previously but was somewhat intimidated with this new residential alternative called luxury condos, especially a “presale” condo (development where the building did not exist with only a sales site to formulate her decisions from).

Instead of a lengthy article, the actual correspondence between us best sums up the reality of her concerns and the factual explanation:

What your friends are paying are "Occupancy Fees". With condos, unlike houses, there are two "closings". The first is called the "Interim Closing" which occurs at Occupancy (when the Municipality authorizes people to actually occupy the premises).

I'll give you a brief overview on how condos close:

When the developer undertakes to build a condo development they go to the Municipality and submit a site plan which the Municipality "Registers" thus it becomes a "Registered Site Plan" setting out exactly what the developer is promising to deliver.

The developer then sells the suites as "presales" (no building exists just as Hudson is now). Once he sells enough units (usually 60%) he digs the hole and builds the building all the while continuing to sell the units.

When he has the building completed the municipality verifies that it is sufficiently completed to allow people to occupy it and issues the "Occupancy Certificate". The developer who has received "NO MONEY" from buyers (all deposits MUST go into "Trust") has been borrowing all construction financing from his bank, contacts all purchasers notifying them of their "Occupancy Date".

He cannot give the purchasers title to their property as the Municipality still has to inspect the premises to insure that he has delivered exactly what his original "Registered Site Plan" represented. The municipality normally takes up to 4 months to inspect the premises and survey etc., to insure that he has conformed to what he represented.

Once the Municipality completes it's due diligence they will "Register The Building" which is the second closing "Final Closing" at which time purchasers will receive title to their property and the developer will get his money.

During that 3 - 4 month time period ("Occupancy Period") the purchasers undertake a portion of the developers mortgage with his bank ("Phantom Mortgage") equal to their proportionate share of the overall condo. This money is called an "Occupancy Fee" and is roughly equivalent to a mortgage that the purchasers would undertake (the rate is protected under the Condo Act) the monthly maintenance fee and a factor for property tax (in total it will be about the same as if you took a mortgage but your cannot get a mortgage because there is no "Title" to the property thus banks cannot issue a mortgage). This "Occupancy Fee" does not accrue to a mortgage thus it is frequently interpreted as "Rent" however the first 4 months of a mortgage is pretty much all interest anyway. Important to remember that the Developer does not receive his money until the building "Registers" (Final Closing) so he wants it as soon as possible.

This particular developer  is very reputable with a solid track record for Registrations (Their most recent development was registered in under 4 months). The new Condo Act facilitates that if a purchaser pays the full amount of their suite at "Occupancy" they pay NO Occupancy Fee covering only the maintenance and taxes portion.

Occupancy Fees have nothing to do with suites sold. If the developer does not get the suites sold out he then continues to pay for each unsold unit during and after the occupancy period thus not affecting purchasers in any way.

I hope this answers your questions adequately. Don't hesitate to ask any questions at any time.

Talk soon.