Every time a new condo is developed it puts an additional strain on the city. New services such as water and electricity are required, often with new piping and infrastructure needing to be built in order to accommodate the increased demand. The cost for these services are passed onto the builder by the City and until recently, buyers may never have even known about them. But now that those charges are going to be increased by nearly double, it won’t be too long before these new charges are all that new buyers of condos can talk about.
The buyers who will be most affected are those that have purchased preconstruction condos within the City of Toronto at some point during the last two years. And the charges are nothing to scoff at. The new costs will amount to approximately $7,671 on an average one-bedroom condo, while two-bedrooms will see those costs go up to about $10,624.
And a lot of buyers will be affected. While an actual count is not possible at the moment, the condo market research firm Urbanation estimates that there are about 20,000 condo units in the vulnerable preconstruction phase right now.
But why are buyers, who have already signed their agreement purchases and probably even put up a down payment, responsible for paying these charges? Because they were imposed after those agreements to purchase were signed.
“Most new condominium contracts provide that the buyer is responsible for any increased development charges that the developer incurs after the date that the agreement is signed,” says real estate lawyer Mark Weisleder.
He says that buyers are left with few options when that happens, but that sometimes real estate lawyers such as himself can negotiate with the developer to put a cap on the charge, saving those that would end up paying the most. Whether or not a cap is implemented is up to the builder, but Weisleder says that many buyers don’t even give themselves a chance at those savings because they don’t hire a real estate lawyer.
“Builders have two choices here,” says Bryan Tuckey, president of BILD. “They can pass the added costs on to buyers or they can absorb them. But these proposed increases are so great, they can’t be absorbed in most cases.”
There has been no comment so far from city officials, although they have said that any new increases would be phased in over the period of a year. That’s not enough for developers, who point to the last increase imposed in 2008. Those were phased in over four years, giving both developers and buyers a little more breathing room in their budgets.
Even with the increases though, development charges in Toronto are still below what’s asked in 905 areas. Tuckey believes that those hardest hit by the increase will be first-time buyers – those that are already struggling to get into the market.