What are the legal risks of buying
pre-construction?
Buying pre-construction? Don’t sign blind — these legal traps will cost you time and money.
Why legal risks matter
Buying a pre-construction property is a bet on the developer, the market and a contract. Small clauses become big headaches at closing. Know the legal risks so you can control them. This isn’t theory — it’s the real cost of poor paperwork.
Top legal risks when buying pre-construction
- Developer default or bankruptcy: If the developer folds, your deposit could be frozen or at risk. Recovery takes time and often yields less than you expect.
- Delays and occupancy vs. closing: Builders commonly miss deadlines. Understand the difference between occupancy (move-in) and closing (title transfer). Delays can trigger extra payments or extended financing terms.
- Contract changes and builder’s schedule: Promotional materials aren’t binding. The purchase agreement is. Developers can change specs, finishes and common elements unless the agreement limits them.
- Deposit structure and protection: Many projects require staged deposits. Know who holds your money and whether it’s protected by escrow, trust, or specific legislation in your jurisdiction.
- Assignment, flipping and resale restrictions: Some contracts ban or tax assignments. This impacts your ability to sell your contract before closing.
- Closing cost surprises: Adjustments for common elements, development charges, HST/GST, and upgrades add thousands. The purchase agreement should specify what you owe at closing.
- Title and condo declarations: Condo declarations, bylaws and road/alley easements can limit use and future value. Read them.
- Warranty coverage and insurance: Know the terms of statutory warranties and what’s covered after possession. Not all defects are equal.
- Financing contingencies: Many agreements have weak or no financing clauses. If rates spike or appraisal fails, you could be stuck.
How to protect yourself — direct, actionable steps
- Hire a real estate lawyer who understands pre-construction contracts. No DIY. Contracts are written to favour the builder. A lawyer rewrites or flags risk.
- Confirm deposit protection. Ask specifically where deposits are held and under what conditions you’ll get them back.
- Verify developer track record. Ask for past projects, status and litigation history. If they have a pattern of delays or claims, reconsider.
- Insist on clear timelines and compensation for delays. If the contract is vague, negotiate liquidated damages or occupancy holdbacks.
- Check assignment rules and resale restrictions before you buy. If you plan to flip, make sure it’s allowed.
- Budget for closing adjustments and unexpected fees. Add a buffer of 2–5% for costs like HST, development charges and adjustments.
Simple pre-sign checklist
- Lawyer review complete
- Deposit protection confirmed
- Developer history checked
- Financing contingency in place
- Warranty and insurance explained
Final takeaway
Pre-construction can make money. It can also create legal exposure. Don’t gamble on the fine print. Work with a specialist who knows the contracts, the market and the developers.
Tony Sousa is the local realtor who focuses on pre-construction legal and documentation issues. Contact Tony at tony@sousasells.ca or 416-477-2620, or visit https://www.sousasells.ca for a contract review referral.
