Market Watch - April 2019 - Legal Updates

An Assignment takes place when the original buyer of a property (“assignor”) sells the right to acquire that property to a third party (“assignee”). The third party takes over the rights and obligations of the original buyer under the Agreement of Purchase and Sale before closing. While the assignor and assignee must negotiate a number of items, the third party ultimately completes the deal with the seller.

A purchaser may enter an assignment for a number of reasons. For example, there may have been a change in the purchaser’s work or family life, or the market has escalated since the original contract for purchase and the assignor is looking to make a quick profit from flipping the property. Depending on the motivations of the seller, a third party may find a home at a comparatively reduced price through an assignment arrangement. In other situations, there may be no new homes available directly from the builder, and an assignment allows the third party to purchase a property in their ideal community. 

When a purchaser is no longer able to reside in the home they originally contracted for, a number of challenges arise. For new home and condo builds, the buyer must pay HST upfront, significantly raising the cost of the purchase. The assignor will want to ensure they are eligible to claim an HST rebate as the amount can be significant. They should consult an advisor on this point. While the new residential rental property rebate is one avenue to recover HST directly from the CRA, this can be a challenging process and has its own set of restrictions. The purchaser will have to locate suitable tenants for the property, presenting its own set of challenges. 

When a purchaser is financing their new purchase and cannot live there, an assignment can be a great tool for avoiding unwanted costs and complications. Given the purchaser’s debt load with the new mortgage, they may be unable to obtain additional financing for a separate home purchase. An assignment in this circumstance benefits a purchaser because they will avoid paying land transfer tax, carrying costs, and listing fees for their property. 

Unlike standard OREA documents for purchase and sale, most condo and new home builds are not assignable without the builder’s consent. Failure to properly obtain consent may result in a breach of contract for the assignor. Some contracts specifically prohibit assignment. Even in this case, a Builder may agree to allow the assignment under certain circumstances. As is the case when the contract allows for assignment, a purchaser must be prepared to pay an assignment fee, use builder specific forms, and comply with additional restrictions. For example, a real estate agent may be prevented from listing the property on MLS. 

For new home and condo purchases with lengthy delays in closing, life circumstances may throw your new home or condo purchase into doubt. You may also see an opportunity to flip your home for a profit before the deal even closes. If you are interested in learning how an assignment may benefit you, be sure to speak with a trusted real estate professional who can guide you through the process.