Charging “entry fees” for pre-construction units

The Real Estate Council of Ontario (RECO) has become aware of a potentially unlawful practice regarding pre-construction real estate. It is being alleged that some registrants may be charging “entry fees” or “admission fees” to prospective buyers of pre-sale homes. These fees supposedly give buyers access to purchase properties before they are available to the public or front of the line status. Media reports have also stated that registrants have asked for cash payments and refused to issue receipts. They may also be sharing the proceeds with the developer’s staff.

There are specific regulations regarding how registrants accept funds from consumers:

Full Disclosure – A document must be presented to potential buyers regarding any funds collected. The document must spell out:

    • what those funds are for;
    • how the funds are to be handled;
    • how the funds will be distributed, such as toward the deposit on a property; and
    • the conditions for the return of the funds if the consumer does not decide to make a purchase.

Under the Code of Ethics, you are obligated to treat every person you deal with in the course of a trade fairly, honestly and with integrity. And you must promote and protect the best interests of your clients. With that in mind, if a consumer pays an “entry fee” and does not purchase a unit, it is expected that the fee will be returned to the customer.

The buyer should also receive a receipt for any funds they provide.

Trust Accounts – All money provided by a buyer to a registrant must be forwarded to their brokerage. That money must be held in the brokerage’s trust account until such time that it is to be disbursed appropriately.

Seller Permission – “Entry fees” can’t be requested or accepted unless the registrant has received explicit consent of the seller of the property to do so.

It would be permissible to accept certain entry fees, only if the registrant complies with the rules listed above. If you are aware of a registrant breaching these rules, please file a complaint with RECO. If you suspect that employees of builders are improperly requesting or accepting fees without proper disclosure to buyers, you should inform Tarion, the regulator of home builders in the province.

Consumers have the right to know what they are paying for, and what will happen with their money. Transparency and upfront documentation are key to remaining in compliance with the regulations.

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