The hunt to purchase a piece of residential real estate can be a bit tricky. Not the least of the issues therein is that it is easy to get confused about things. Two terms that are heard everywhere in the Toronto real estate market are “freehold” and “condominium.” They are so common, it may be easy to mistakenly believe that they are the only two types of entities you need to worry about.

But both a freehold and a condo property could have a parcel of tied land (POTL). This term describes properties that have an interest in a Common Elements Condominium (CEC). A POTL is transferred or mortgaged with the property it is tied to. Typically, they are used for such features of a property such as a shared parking lot, a park, tennis court, marina, beach, or more.

To better understand how a POTL works, we need to first turn our attention over to exploring what a CEC is and how it functions. With this in mind, we can then discuss the obligations that arise when one is a POTL holder, as well as the steps required to buy a POTL and other considerations not addressed elsewhere.

What Is a Common Elements Condominium (CEC)?

We can’t start to understand what a POTL is and how it works until we’ve taken the time to understand what a CEC is and how it functions. We’ll dive into CECs and then see how they differ from other condominiums.

Registered under the Condominium Act, 1998, a CEC is a different type of condominium than people expect when they hear the word because a CEC doesn’t have individual units. Rather than purchasing a unit from the corporation that controls the condominium, you instead purchase a fraction of ownership in the corporation. In theory, the fractions of ownership for sale are equal to each other but a number of factors may affect this.

Since what it means to own a piece of a CEC is so different from what it means to purchase from a typical condominium, it makes sense that the means of ownership would be different. That’s where a POTL comes into play. It is the means through which you own a piece of a CEC.

Some important differences between CECs and other condominiums:

  • A CEC can only be used for detached, semi-detached, or townhouse buildings
  • Legal ownership of POTLs cannot be divided across vertical boundaries
  • A POTL cannot be severed from a CEC without a lot of paperwork and approval
  • A CEC has no units, only common elements
  • It is harder to change financial obligations like rent with a CEC
  • A CEC may have fewer enforcement options against those who fail to uphold their duties

What Obligations Does a POTL Holder Have?

POTLs can be a great way of managing a shared piece of property, but it can also have some major disadvantages. While we’ll look at these in a moment, it’s important to note that the disadvantages and drawbacks in no way limit or reduce the obligations you have as a POTL holder. However, they may affect those obligations in interesting ways.

One appealing feature of these arrangements is that you wouldn’t have to interact with neighbors or even the common elements if you didn’t want to. For some people, this is great. They want to live their lives without feeling like they’re stuck together with their condo neighbors.

But just because an individual doesn’t use the common features, it doesn’t mean that they can get out of having to pay their duties for those common features. For example, your POTL is used for a shared golf course. But you only wanted the place to live; you have no interest in golf, don’t even own a set of clubs. So why would you pay fees to go towards something you don’t use?

The reason to pay the same reason you pay the fees associated with a traditional condominium. When you fall into default of common expenses under the CEC, the end result could be a lien registered against the freehold property you call home.

While this can be frustrating, what’s even worse is that not every POTL is going to have similar fees. There are two reasons for this disparity and a consideration of each prior to purchasing a POTL can be beneficial.

The first is the type of asset being held. A shared park is not going to be particularly expensive and so you could expect fees on the lower end. In contrast, a golf course or a marina are going to require much more resources for upkeep and so the amount of fees owed would be higher.

The other important feature to consider is how many members make up the CEC. Using the examples above, it could happen that the golf course has far less fees than the park due to the number of members. The park only has five members in the CEC and so fees are split five ways with each person paying 20%. The golf course, in contrast, has five hundred members and so each member only pays 0.20% of the fees. Size is a major factor in determining potential costs.

How Do You Buy a Parcel of Tied Land?

It is not really that different buying a POTL compared to a traditional condo. One key difference is that there is additional paperwork, as you should make sure to review a Status Certificate of the share in the CEC.

Additionally, an OREA Form 111 is used for purchasing of POTL. Essentially what it does is ensure that the POTL is attached with the transfer of property.

Do I Need a Lawyer to Purchase a POTL?

A lawyer is not necessarily required but they can help. This is especially true prior to the purchase itself when dealing with the paperwork. A lawyer can help you to catch red flags before they become problems so you don’t find yourself locked into a contract that is only detrimental to your life.

In addition, a financial or real estate lawyer is able to point out other potential problems, benefits, or steps that could help in the overall process. By hiring an attorney that understands the field, you can save yourself the time and headache of trying to do it yourself.