The trust rule
Under section 81 of the Condominium Act, 1998, a prescribed trustee or the declarant's solicitor must hold all deposits and sale proceeds for a proposed unit in trust. The money can leave trust once the declarant provides security of a prescribed class (s.81(7)). Interest is still owed to the buyer.
What counts as prescribed security
| Class | Rule |
|---|---|
| Deposit insurance policy | O. Reg. 48/01 s.20(2) and s.21: a policy against loss of deposits plus interest |
| Tarion deposit receipt | O. Reg. 48/01 s.22: covers $20,000; anything above the receipt limit stays under s.81 |
So the deposit above $20,000 per unit needs either trust or a qualifying deposit insurance policy.
Terms the policy must carry
- The declarant pays the premium and cannot pass it to the buyer.
- The insurer stays liable even if premium is unpaid or the declarant breaches the policy.
- The insurer pays within 60 days once the buyer's right to payment is established.
- Coverage runs until the deed is delivered, the deposit is refunded or another listed event.
- Any term that cuts the buyer's rights is void.
What underwriters look at
- Presales, deposit structure and total deposits to be released.
- Construction financing and the lender's view on deposit use.
- The declarant's equity, financials and condo track record.
- Tarion standing and HCRA licence.
- Indemnity from the declarant and its owners.
