When a phonebook size offering plan for your new condo thumps down on the table in front of you, you might get an instant headache at the thought of actually having to read it. However, ignoring it could give you more than a headache. You might get heart palpitations. Give your lawyer a call and ask him to dive into it. You’ll be glad you did.
What is a condo offering plan?
A condo offering plan is a disclosure document for prospective buyers which contains important information about a condo (or co-op) including pricing, buying procedures, floor plans and building bylaws.
Why is a condo offering plan so important?
If you are buying a brand new construction or a building which is being converted into a condo development, an offering plan explains exactly what you’re buying and how it will be run.
If the purchase is for a previously owned condo, in addition to the offering, you should receive the minutes of the board meeting and the financials of the building and how it is being run. That is the most vital information but the offering plan will still serve as a good reference.
How do I read an offering plan?
There are two main parts of the plan. The first part explains the features of what you’re buying and how you will buy it from the developer. This includes the details of the transaction: how the downpayment will be handled, when the closing takes place, who pays the taxes and various closing costs. It will also give the developer’s contact info if there are construction issues.
There will also be information regarding the developer’s operation of the building until it is handed over to the management company. There is usually a window when the developer will be responsible for repairs and defects after each unit is sold. It’s important that you contact the developer within this time frame if you notice leaks, faulty electrics, cabinets not closing properly etc.
The second part of the plan will show the exhibits of the signed purchase agreement, the condo declaration and by-laws. These will explain how the condo will be run in the future. There will also be floor plans and an architect’s description of the components in the building.
The dense legalese in an offering plan will probably be confusing to many buyers but it’s important to get a lawyer involved to get a full understanding of what you’re getting into.
Are there any sections of the offering plan I should pay particular attention to?
The first part will have a “Special Risks” section. This will detail the unique elements that could cause you concern. For instance, if you think you can park your car in parking lot next to the development, you may discover that the developer of your condo owns the lot and plans another building next to yours Not only will this take your spot but it will also eliminate light and views.
If your development is a “mixed use” building, ie. the residential condos sit on top of a commercial space, the condos on top will have no say who occupies the space below. A nail salon or organic market, no problem. A bar or a tattoo parlor, you might be concerned.
Other things to be wary of:
- No financing contingency. In a strong market where demand exceeds supply, the developer may try and throw this into the contract to make sure you close. The risk is, if you don’t secure financing, you’ll lose your downpayment.
- The condo building is a leasehold
This is more common in co-ops than condos. What this means is that that the developer has rented the land that the building sits on. Once the lease runs out, the landowner can increase the rent which will increase maintenance charges.On the off chance that the lease is actually set to expire in a decade or two, it’s doubtful that you’ll find any banks willing to give you a mortgage.
Is anything negotiable in my condo offering plan?
The maintenance charge is generally not negotiable as it is based on the percentage of the building you own. However, elsewhere there may be room to negotiate. Much of it depends on how desperate the developer is to sell the condo. Don’t simply assume that because you were quoted one price, that has to be the final price. Read the fine print to see if the price is negotiable. It certainly won’t hurt to ask. The same goes for transfer taxes, closing costs, fixture upgrades, appliances, parking spaces etc. If the developer has several unsold units, they may be willing to do deals to get them off the books.
Make the offering plan a priority
You’ll receive your offering plan around 3 days before you are due to sign a contract with the developer (sponsor). Make sure you read it asap. There may be something in there that’s a deal breaker for you. If you procrastinate and sign the contract before examining the offering plan you won’t be able to go back and renegotiate. Worse, if you want to back out of the deal, your down payment will not be refunded.