Article | admin | 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.