Here’s An Interesting Challenge, And Example Of “Real Life Confusion” When Buying A Home With A Condo Component “POTL”


A new development in real estate alternatives these days is POTLs (“Parcels Of Tied Lands“).

As a top producing condo specialist in an area as small as from St. Clair down to the lake, from Yonge Street to just a couple blocks west to Spadina, I hadn’t paid a great deal of potential to POTLs, because I just didn’t see them factoring into my skill set.

Having become so disgruntled and dissatisfied with condos in Condoland (pretty well every condo unit that I had invested in, as long term rental income properties, ended up  so materially flawed that I had to sell all of them) and especially coupled with my anticipation of a “significant downward price adjustment” that has been dodged, thanks to our government using our tax dollars to “buy down interest rates in their U.S.A.-plagiarized approach to Quantitative Easing“) I shifted my strategy to high end detached houses and found this one in Oakville Ontario (a beautiful lakefront resort community about 25 miles from Condoland.

In my efforts to find a qualifying investment (the best investment in the world is the one that you live in and if you continually keep an eye open to upgrade while using the equity growth (“tax free” on principal residence) this quality investment can grow exponentially without causing a great deal of inconvenience and/or risk, I became aware that detached housing these days, in the majority comes as POTLs.

The condo aspect is simply the road while the houses remain “Freehold“.

So, I was having my usual developer Case Study (I simply write truthful accounts of my interactions with developers in the buying process and it appears that my truthful commentary offends them, just not enough to make them consider changing their ways!) laying out the conventional stupidity that comes with buying pre-sale, and a (to-be) new neighbour contacted me, expressing her frustrations with dealing with this developer.

I have to admit I was caught off guard as I had never named the developer.

She was not impressed with my reporting on the manner by which I was being dealt with as she was having difficulty with them.

My first instinct was to suggest that possibly she simply does not understand condominiums and the unique process involved in “closing” sales of them.

This is understandable as most buyers have never considered buying into condos, don’t understand anything about them, possibly having purchased their existing home resale (existing properties) before, and therefore comfortable with having at least a feel for a buying process that is quite different than when condo related.

For example, this consumer was convinced the she had “closed the sale received her title to her home“.

Well, I’m not a lawyer but in my humble opinion, she actually hadn’t, yet she was convinced that she had closed and I don’t feel it my place to challenge others in matters that do not relate to me.

Condos, (and resultantly) POTLs have two (2) separate and distinct “Closings” (only one, the second involves “Title“).

Not really closings but legally called closings (there’s only actually one “closing” and that’s when the buyer delivers the money, whether from a mortgage lender or in cash, and the developer delivers “Title” to the property.

The first is an “Interim Closing” or “Occupancy“, where the owner is required to accept possession of the property through an Occupancy Agreement.

The developer had originally submitted to the Municipality, a Plan to build these 18 new homes on a newly formed street.

The Municipality had agreed to the Plan after thorough assessment and discussion and “Approved” the developer’s submitted Plan forming a “Approved Site Plan” (the plan that the developer is promising to deliver).

This is what the developer is building, this is the site locations of each home, etc.

Once the developer builds the homes (or road in this instance as it is only the road that is condominium) they must go back to the Municipality and ask the Municipality to attend the property and verify that all aspects of the “Approved Site Plan” have been met and fulfilled, and which point the Municipality will “Register” the Site, a condo corporation is formed and title to each property is given (in exchange for all the cash) to each individual purchaser.

My neighbour was accurate that she had experienced “Interim Closing” but seemed totally unaware of the necessity of a second “Final Closing” (this one delivers the Title.

What my neighbour’s expression about “having received her Title“, suggested to me that she was possibly unaware that the transaction actually had closed only in “Escrow” with “Occupancy Fees” set out in the contract.

There is a “Buried Issue” underscoring the concept of “Occupancy“, in that the Agreements impose a “Phantom Mortgage” on the “full unpaid balance of the purchase price“.

This can be avoided by negotiating, into your contract at the time of purchase, that you “will advance all cash at the Interim Closing/Occupancy” thereby negating the need for the second mortgage.

The developer does not have to accept this term but when negotiated right up front, during the ten day rescission period, I’ve never had any resistance, and why would they, their lawyer is getting 100% of the funds by certified cheque before the buyer moves in.

A lot of money can be saved here when you calculate a million dollar home with a conventional 80% mortgage (even though the buyer may be paying all cash they probably didn’t negotiate the option to advance all cash at occupancy and thereby save on occupancy fees.

When you realize that frequently developer don’t get “Registration” for up to a year!

And why not when they are so richly rewarded for not getting registration!

But, my point is that a POTL consists to two distinct elements, the home and the road with the road the only element that relates to the condo, resultantly any “Occupancy FeeSHOULD relate to ONLY the percentage of the purchase that relates to the road/condo.

The way the developer’s contract reads requires each purchaser to pay the Phantom Mortgage (set out in “Schedule C” of the Tarion component of the Agreement of Purchase & Sale.

I’ve asked the developer’s lawyer to reply with the legal standing on which they rely when charging consumers an Occupancy Fee that includes a Phantom Mortgage on the entire price of the transaction (road and house).

I’ll keep you posted and welcome your comments.

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I’m Charles

Sunrise Homes

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