Pursuant to Section 82 of the Condominium Act, a declarant is required to pay interest at the “prescribed rate” to a purchaser on all moneys paid on account of the purchase price for a proposed unit from the day each amount is paid until the day the unit is available for occupancy.
Section 19 of Ontario Regulation 48/01 specifies that the prescribed rate for the purpose of Section 82 of the Condominium Act is the rate set by the Bank of Canada as the minimum rate at which the Bank of Canada makes short-term advances to members of the Canadian Payments Association (referred to as the Bank of Canada overnight lending rate or bank rate) less 2% per annum, which prescribed rate is set/adjusted twice each year on April 1 and October 1.
From December 2008 to July 2022, the Bank of Canada overnight lending rate was less than 2% and, therefore, the prescribed rate for Section 82 of the Condominium Act was zero during this time period and condominium purchasers earned no interest on their deposits.
The province has recently decided that condominium purchasers should receive some interest on their deposits. Accordingly, Section 1 of Ontario Regulation 450/22 (which comes into force on January 1, 2023) introduces a new reference rate which will change the prescribed rate of interest payable under Section 82(1) of the Condominium Act, revoking the existing bank rate reference and definition in Sections 19(2) and 19(3) of Ontario Regulation 48/01 for new projects and bringing into effect new Sections 19.1 and 19.2.
For all new condominium projects (or new phases of existing projects governed by Part XI of the Condominium Act) launched on or after January 1, 2023, the new prescribed interest rate shall be the “policy interest rate” set by the Bank of Canada. For the purpose of Section 82 of the Condominium Act, this rate will be set/adjusted twice each year on April 1 and October 1. For clarity, the Bank of Canada policy interest rate is 25bps less than the Bank of Canada overnight lending rate or bank rate.
It is important to note that for existing projects (where at least one bona fide agreement of purchase and sale is entered into prior to January 1, 2023), new section 19.1(1) applies, which maintains reference to the “bank rate,” effectively grandfathering the project under the old interest rate regime.
It is also important to note that with the bank rate increase to 2.50% on July 13, 2022 (and to 3.50% as of September 7, 2022), developers will be required to pay interest on purchasers’ deposits commencing October 1, 2022, even for grandfathered projects.