May 6, 2022
”One, Two, Three Strikes You’re Out” and “Up, Up and Away with Condominium Deposit Interest Rates”
By: Leor Margulies
As the song goes “It’s the time of the season”. Every 3 years the residential construction industry has to go through this ordeal of rolling strikes over a 6 week period and then a remobilization period that can take several months to get back on schedule. As if we don’t have a supply chain crisis already.
Everyone is aware of the various strikes that have commenced this week and that will continue potentially up to June 15, 2022 and other ones which may be announced. I just want all my builder clients and confreres to again be aware of the application of the Tarion Unavoidable Delay Rules:
- The fact that there is a strike in your industry does not trigger the right to send out your First Notice. It is only if the applicable strike or strikes impact on, and will delay your particular project;
- If there are several strikes that have or will be occurring, one First Notice can cover all of these strikes;
- Builders are required to send out the First Notice confirming the Unavoidable Delay within twenty (20) days of assessing the impact of the strikes. Don’t rush to send the First Notice the day that the strikes start;
- Many builders have already issued First Notices for Unavoidable Delay in respect of the impacts of the pandemic/supply chain issues, etc. This should not prevent you from sending out a further First Notice of Unavoidable Delay relating to the impact of the strikes. These strikes could potentially extend the Unavoidable Delay period that is already in effect as a result of the pandemic; and
- Before sending the Second Notice at the end of the strikes, you should determine the Remobilization Period to get the project going again and the total impact of the strike. Tarion has indicated in its advisories that thirty (30) days to assess the impact of the strike and the determination of the Remobilization Period is not unreasonable. Then you have twenty (20) days to send the Second Notice.
Regarding changes to the Condominium Rules, many of you are aware of the ongoing proposals from the government to address project cancellations and other related matters to condominiums. The Ministry of Government Services announced earlier this week that the applicable interest rate payable on condominium deposits, in all circumstances, will change effective January 1, 2023. This change will apply not only to terminated agreements, but all situations as the definition for calculation of interest on a condominium deposit, whether it is being returned or as an adjustment on the final closing of a sale.
The new benchmark rate will be the Bank of Canada overnight rate which currently is 0.75%. It previously was the Province of Ontario savings rate. For Agreements of Purchase and Sale that were entered into prior to January 1, 2023, the calculation will still be similar. i.e. 2% below the BOC rate, which until the BOC rate exceeds 2%, no interest will be payable.
In respect of any projects launched after January 1, 2023, as evidenced by the first Purchase Agreement taking place after that date, the rate will simply be the BOC rate. So deposits will always accrue a positive rate post-January 1, 2023.
This will give builders sufficient time to build into their pro formas for projects launching in the New Year, the additional interest that will be payable.
For further information, please contact Leor Margulies at (416) 360-3372 or email: email@example.com