Written by Preet Banerjee
Thursday, May 3rd, 2018
If you buy a pre-construction condo, it may be a few years before you get to move in. And when you do finally get the green light to move in, you might be surprised to learn that you still might not actually own your condo unit just yet.
The period between the occupancy date the builder gives you and when the condo finally closes (and ownership transfers to you) is known as the "interim occupancy period." The fee you pay to the builder during this time is known as the "interim occupancy fee."
Why Is There an Interim Occupancy Period?
When a condominium is built, ownership in the condo units can't transfer from the builder to the condo buyers until the building is registered with the local municipality. This registration of the building can't happen until all the units in the building have been completed. But since units on the lower floors will be completed months before units on the higher floors, these lower floor units could still be in a move-in ready condition before the building is fully complete.
As the building nears completion, the developer will send out letters well in advance indicating the "interim occupancy date" for each unit. The lower the floor your unit is on, the earlier your interim occupancy date will be, and the longer your interim occupancy period will be.
During the interim occupancy period, you'll need to pay the builder an interim occupancy fee regardless of whether you've actually already moved into the unit or not. You'll want to keep this in mind, especially if it means you could find yourself having to cover the cost of two homes at once.
If the interim occupancy date occurs before your current lease ends (if you're renting), or before you close on selling a place you currently own, you'll need to have some money set aside to cover any overlap. Although the interim occupancy fee is generally lower than your monthly costs would be after closing, it's not low enough that you can just close your eyes and go in without a plan to manage your cash flow.
How to Plan for It
The best way to prepare is to save up for this expense in advance, maybe even in a separate savings account that you specifically dedicate for setting aside money towards the fee. Of course, ideally, you can avoid the overlap by being in a position to time the exit and financial obligations of your current home so that it's in sync with the interim occupancy date.
The interim occupancy period could be non-existent or very short (if you're buying a unit on a high floor and the developer doesn't experience any paperwork delays), or it could last up to 18 months in extreme cases if there are significant delays in construction and your unit is on a lower floor.
Shorter interim occupancy periods are better for you because the interim occupancy fee you pay doesn't reduce how much you owe on your new condo purchase.
Review Your Purchase Agreement
Make sure to review your purchase agreement with a real estate lawyer to see what to expect for interim occupancy periods and fees for pre-construction condos. You may also want to inquire about the interim occupancy periods for other developments the builder has handled to see what their track record has been.