New Build Condominium – Do You Get Interest On Your Deposits?

The short answer is ‘Yes … but’.  Section 82 of the Condominium Act (“Act”) legislates that the builder (also called the declarant) must pay you interest on any funds you have paid as a deposit towards your purchase.  This is great news for purchasers as we see more and more delays in the completion of new Toronto condominium projects and, as a result, builders holding purchaser deposits in trust for 3, 4, or 5 years and sometimes longer.

 

Sections 82(1) and (3) of the Act state the following:

 

    Interest

        82. (1) The declarant shall pay interest at the prescribed rate to the purchaser on  all money that a person pays on account of the purchase price of a proposed unit or that the declarant credits to the purchase price of a proposed unit.

    Calculation

       (3) The interest shall be calculated from the day the person pays the money received until the day the proposed unit is available for possession or occupancy in accordance with the purchaser’s agreement of purchase and sale with the declarant.

 

However, the great news stops there.  The ‘prescribed rate’ referred to in section 82(1) is defined in section 19(3) of Ontario Regulation 48/01 as “2% per annum below the bank rate”Unfortunately, the current Bank of Canada overnight bank rate is 1%.  Thus, if you currently have money on deposit with a builder, then it is not earning any interest.  In fact, if you have had money on deposit with a builder going back as far as December 9, 2008, you have earned ZERO interest.  That is the date that the bank rate dropped from 2.25% to 1.50%.

 

Think about the lost opportunities.  If you had invested the same money in Apple stock on December 9, 2008, when the price was $100.06, your return to November 1, 2012 was 487%.  Even in a conservative investment such as TD Bank stock, your return to November 1, 2012 was 97.6%.

 

When we meet to sign the closing paperwork and review the Statement of Adjustments, real estate purchasers buying new build condos are always shocked  to find out their deposit money earned little to no interest.

 

Of course, this should not stop you from buying if you have found that perfect condo.  However, you should be aware of what your money is doing for you while you wait for your condo to be completed.

 

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