Homebuyers getting ‘nasty shock’ from city’s new vacant unit tax | CBC News

Some Ottawa homebuyers are getting sticker shock months after their purchase, as vacant unit tax (VUT) charges from the previous owner add thousands of dollars to their property tax bills.

Nick Gagnon got a $4,800 surprise on his bill after buying a Nepean home in an estate sale. It closed in February, and now he’s dealing with the fallout of the seller’s mistake.

“We got a nasty shock of, hey, here’s this vacant unit tax we weren’t expecting to pay,” Gagnon said.

Rolando Pirker said he opened his property tax bill on Monday and was surprised to see it was double the amount he’d guessed. He noticed a $3,670 vacant unit tax charge on a home he bought this March.

Pirker suspects the previous owner made a mistake filling out the declaration to the city to confirm whether the property was occupied during the previous year. Whatever the reason, he doesn’t see why any of that should be his problem now.

“It’s not my mistake. It’s the previous owner’s mistake, but all of a sudden I’m getting the bill,” Pirker said. 

But the city says it is his problem. On a webpage explaining the program, it says buyers should do their due diligence to ensure there are no outstanding taxes owing on their new property, since they become the buyer’s responsibility after sale.

Joseph Muhuni, the city’s deputy treasurer, said the VUT works like property taxes: It’s tied to the home, not the owner.

When the city rolled out the tax, Muhuni explained, it sent out letters to law firms that handled home sales to make sure they understood.

“We always have advised the law firms to make sure that there’s full disclosure and due diligence in either case — whether it’s been declared vacant or occupied — making sure that the buyer understands what the declaration or occupancy status was for that property in the previous year,” he said.

‘Ideal solution’ could be in sales agreement

Here’s where it can get complicated: Generally, the VUT declaration is due in mid-March with an extended deadline of April 30. If a sale closes after Jan. 1, but before the extended deadline, the seller is supposed to submit the declaration.

With the VUT program still so new, real estate lawyer Shannon Hogan of Mann Lawyers said that step “might go unnoticed” in some cases.

“If somebody purchases the property early enough in 2024 — so before the vacant unit tax declaration for the previous year is due — the sellers may not have filed that declaration in 2024 for the previous calendar year,” she said.

“Then, when the deadline does pass and the tax gets levied, that’s when the purchaser has a nasty shock.”

Lawyers generally look at property tax bills and ensure they’re paid, Hogan said, but that might not be enough to catch the VUT charge. She said the buyer’s lawyer should request tax certificates or some other explicit confirmation, so nothing falls through the cracks.

Hogan said there’s another way to protect buyers that’s increasingly finding favour as real estate agents begin accounting for the VUT in the sales agreement.

That can include a sworn statement confirming that the seller has submitted a declaration, and even an indemnification stating that the seller, not the buyer, is on the hook if anything goes wrong.

“We don’t see that in every agreement of purchase and sale, but that’s … the ideal scenario,” Hogan said.

‘You just feel uneasy’

Gagnon said he now has some clarity on what landed him with that $4,800 line on his property tax bill. The seller claimed a VUT exemption available after a death, but it turns out they didn’t actually qualify because the home had been empty too long.

“When we submitted the documents to our lawyers on closing, the lawyers had no way of knowing that the home was vacant for more than two years. It was actually vacant for five years,” he said.

He said his lawyer says they’ll take care of the problem, and it might undergo an appeal. It could also be covered by title insurance, but Gagnon doesn’t think that’s a good solution.

“You don’t want to have title insurance paying out these vacant unit taxes, because that’s just going to increase everyone else’s title insurance,” he said.

Even if he gets off the hook, dealing with the VUT system hasn’t been pleasant for Gagnon, especially amid all the stress of moving into a new home.

“It’s a lot of money and a big shock,” he said.

After reaching out to his lawyer, Pirker confirmed that the $3,670 charge on his bill stemmed from a mistake: It looks like the previous owner selected the wrong year for the start of a tenancy in 2023, he explained.

He said his lawyer has now contacted the seller’s lawyer, who contacted the city, which, he’s been told, has acknowledged the error and corrected it. 

Pirker called the whole episode confusing. He doesn’t plan to pay the VUT on his bill right now, but isn’t sure whether it will really go away without a formal appeal. 

“You just feel uneasy,” he said. “Are they going to put a lien on my house?”