Building a condominium requires major investments on the part of a developer. This is the reason why a down payment will be required upon signing the preliminary contract for the desired condo unit. This down payment, which represents the first installment to the seller, varies according to the unit’s total price.
How much should be paid as down payment?
There is no fixed rule to this effect. Some developers require a down payment equivalent to 10% or 15% of the total price, at the signature of the preliminary contract, while others might ask for different instalments, according to work progress. With such agreement, the payments can be spread over several installments. For example, 10% at the signature of the preliminary contract, 5% when the excavation work is finished, 5% when construction reaches the floor where the apartment is located and 5% when installing the roof.
Caution is advised
Article 1791.1 of the Quebec Civil Code provides that the developer or the builder must fully protect any deposit paid toward the purchase of a fraction of an immoveable under divided co-ownership. To do so, he has four possibilities:
The chosen solution may involve one of these options, some or all of them. However, the deposit protected by a suretyship, an insurance or a guarantee plan allows the developer to cash the deposits, to be used to carry out his project.
Notary’s trust account
Entrusting your down payments to the sale’s officiating notary remains a possible option, provided that the total of the deposits does not exceed the maximum compensation of the Fonds d’indemnisation de la chambre des notaires, which is 200 000$. The money will be kept into the trust account until the final transaction. In the event that the developer is unable to meet its obligations, the preliminary contract could be canceled and the deposits refunded by the notary.
However, this approach is rarely possible. Most of the time, the developers refuse that the deposits be put into a trust account, because this deprives them of substantial interim funding.
Mandatory guarantee plan
If the construction project is accredited by the Garantie de construction résidentielle (GCR), according to the Regulation respecting the guarantee plan for new residential buildings, deposits paid will be protected by the plan up to the maximum allowable amount, which is 50 000$.
A reminder that the preliminary contract must contain a provision specifying that the buyer can cancel, within 10 days of signing the document. Cancelation within this time limit entitles the buyer to the refund of the down payments. Article 1791.1 of the Quebec Civil Code stipulates that the deposit is also returned to the person who paid it if the fraction of the immoveable is not delivered on the date agreed upon.
WHAT YOU SHOULD KNOW! Before paying a deposit, check if your developer has a valid licence issued by the Régie du bâtiment du Québec (RBQ) Verify also his reputation. Many consumers have lost considerable sums in fraudulent schemes.
WHAT TO KEEP IN MIND: The mandatory guarantee plan offers limited protection. Therefore, the developer will have to protect any amount paid above the allowable maximum, either with a suretyship, an insurance or the trust account of a member of a professional order determined by government regulation.
WARNING! You better not make a down payment without obtaining a receipt. For further reading, concerning down payments for an existing condo apartment, consult the factsheet Deposits with the offer.
For more information concerning deposits for an existing condo, please consult that factsheet.
CONSULT THE PUBLICATION: Achat et vente d'un condo: Tout ce qu'il faut savoir at pages 140 and following.