Pre-Construction Condominiums: New Interest Rules on Their Way for Cancelled Condominium Projects and the Return of Deposit Monies
UPDATE: On October 21, 2022, this Regulation was revoked. See our update here.
There has been ongoing concern from the government about the increasing trend of cancelled condominium projects. Particularly, the impact of these cancellations on consumers who paid large deposits, often years in advance of the closing date. Until recently, such deposits accrued little to no interest. The Ministry and the Ontario Home Builders Association began talks in early 2022 to reform the regulations so that purchasers would be entitled to a reasonable interest rate on these cancellations.
New Rules Coming January 1, 2023
On April 28, 2022, the Ministry announced that they were making changes to the interest rate payable on condominium deposits, effective January 1, 2023.
Current Interest Policy
- For all condominium projects where the first purchase agreement was signed before January 1, 2023, the existing rates apply.
(a) for the period from April 1 to September 30 of each year, 2% per annum below the bank rate at the end of March 31 of that year; and
(b) for the period from October 1 of each year to March 31 in the following year, 2% per annum below the bank rate at the end of September 30 immediately before that October.
As at September 2022, the bank rate is 3.25%. Therefore, if a purchaser has paid a deposit, interest will accrue on such deposit. This means that if a builder cancels a project, the builder returns to the purchaser the deposit paid + the interest accrued.
Amended Interest Policy
- For all purchase agreements on or after January 1, 2023, the new rates apply.
(a) for the period from April 1 to September 30 of each year, the policy interest rate at the end of March 31 of that year; and
(b) for the period from October 1 of each year to March 31 in the following year, the policy interest rate at the end of September 30 immediately before that October.
As at October 2022, the policy rate is 3.25%. Experts forecast that this rate will reach 4% by the end of 2022.
All condominium purchasers should take note of this change and the Ministry’s move towards increased consumer protection in the pre-construction condominium industry.
All condominium developers should take note and prepare for the impact of the amended regulations that require a higher interest rate to be paid to purchasers on all condominium deposits. The financial incentive for developers to use their early termination conditions (conditions in the Agreement of Purchase and Sale outlining the terms under which the developer can cancel the agreement with no consequence) will be impacted by these changes, and may affect the bottom line enough that Developers seriously pause before cancelling. These changes will also impact the bottom line of bad-faith developers who seek to resell units for higher market values, years after receiving purchaser deposits.
If the Developer decides to trigger an early termination condition, they must send notice to the purchaser within five days of the expiry of the condition. If cancelled, these deposits must be returned, in full, within ten days of termination.
Both parties will have to work together to embrace these changes moving forward.