If you’ve purchased a preconstruction condominium in Toronto that has yet to close, take a close look at your Agreement of Purchase and Sale – you could be stuck paying a price increase of more than $10,000.

Like most municipalities, Toronto charges development fees when constructing a new building, adding new residential units to an existing building, or substantially redeveloping a building.

Since developers have no control over these fees, most Agreements of Purchase and Sale for preconstruction condominiums contain a clause stating that if the fees levied by the city increase, the developer can pass these increased fees onto the purchaser.

For example, one typical clause states that the purchaser is responsible for paying:

“The amount of any increase in development charge(s) or levies and/or education development charge(s) or levies (“Levies”) assessed against or attributable to the Unit (or assessed against the Property or any portion thereof, and attributable to the Unit by dividing the total amount of such charges by the number of dwelling units in the Condominium) pursuant to the Development Charges Act 1997, S.O. 1997, as amended from time to time, and the Education Act S.O. 1997, as amended from time to time, over the amount of such charges that would be exigible as of the date of acceptance of this Agreement and the amount of any new Levies that were not exigible as of the date of acceptance of this Agreement, with respect to the Property and were subsequently assessed against the Property or attributable to the Unit.”

Note that in some cases, purchasers have been able to negotiate a “cap” on any increase in development fees. These purchasers would only be responsible for paying the increase in fees up to this cap – the developer would be on the hook for the remainder.

Development charges haven’t increased since 2009. However, as part of its recent review of the development charges bylaw, the City of Toronto has proposed large, across-the-board increases to development charges:

  • Fees for a one bedroom or bachelor unit would increase $7,671, from $8,356 to $16,027.
  • Fees for a two or more bedroom unit would increase $10,624, from $12,412 to $23,036.

The city is also considering phasing in these increases over a period of two years.

As you may expect, developers are protesting these fee increases, warning that the boom in condominium construction could be threatened. However, the proposed increase is estimated to bring in an additional $110 million to the city’s coffers every year.

Toronto’s executive committee is set to debate this motion on July 3, 2013. If they approve the increase, the entire city council will debate the issue on July 16.

If you have questions about your Agreement of Purchase and Sale, speak to your lawyer. If you have questions about the increases in development charges, speak to your city councilor.