April 19, 2016

Tenancy At Will Agreements and New Condominium Purchases

With the exception of cash deals, tenancy at will agreements are signed in virtually all residential real estate transactions in Alberta. While closing dates typically precede or mirror possession dates, there will occasionally be situations where a delay pushes the closing date beyond the possession date. Tenancy at will agreements address such situations by allowing the purchaser to take possession of the property prior to closing on the condition that the purchaser pay a rental fee to the seller. In the majority of real estate transactions, the tenancy at will agreement is a precautionary measure that is never used. However, one area of real estate where tenancy at will agreements are acted upon with regularity are new condominium purchases.

New condominium purchases offer a unique real estate problem because of the delay between the completion of the condominium and its registration with the Land Titles office. Section 14(3) of the Condominium Property Act states that without registration, ownership of condominium units cannot be transferred from the builder to the purchaser. Before individual units can be registered, the condominiums themselves must be registered. To be registered, the condominiums must receive a number of permits from the municipality. To receive many of these permits, the condominium build must be near completion. Unfortunately, the volume of the administrative work required means that many condominiums are fully built and ready to be lived in prior to their registration with Land Titles. If builders waited for registration before allowing possession, unit owners would be subject to prolonged and unpredictable delays. Tenancy at will agreements are the solution to this problem.

When a delay is expected between possession and closing, the builder will inform the purchaser’s solicitor of the estimated length of the delay and instruct the solicitor to collect tenancy at will rents for a period in excess of the estimate. The builder will then hold the rent payments in trust and use only the funds necessary for the duration of the tenancy at will. Any unused funds will be returned to the purchaser upon the funding of the mortgage.

It is important to note that on new condominium purchases a mortgage cannot fund until the purchaser is registered on title, and therefore the purchaser will not be paying both the mortgage and tenancy at will at the same time. If the funding of the mortgage occurs after the specified first payment, the payments will adjust for the delay on a pro rata basis. Further, the purchaser should not expect to pay any more than they otherwise would be paying towards the interest component of their mortgage because the amount of the rent is usually calculated at mortgage rate mortgage amount. In other words, the purchaser will not be out be out additional funds via the tenancy at will.

Ultimately, tenancy at will agreements in new condominium builds operate to provide purchasers with the soonest possible possession of their units. Without such agreements, purchasers would have to wait weeks while permits were granted, documents were processed and titles were registered. The onerous costs of these delays make tenancy at will agreements an invaluable asset in new condominium purchases.

If you are interested in more information about condominium builds, or have other real estate law inquiries, please do not hesitate to contact the Walsh LLP Real Estate Group.