What is an Assignment?
Tuesday Oct 31st, 2023
An assignment is a real estate transaction where the original buyer (the Assignor) sells their buyer rights to an existing real estate contract to acquire property from a 3rd party (typically a Builder/Developer), to a new buyer (the Assignee). While it is possible to assign the rights to a re-sale transaction, for the purposes of this post, we are going to focus on new construction properties only.
Why would the original buyer want to sell their buyer rights to a property?
The original buyer will have bought a property from the builder/developer and is looking to sell their rights/contract before taking official ownership when the property has been completed. For buyers who are interested in a certain new development project, this would be a great opportunity to buy into a project that might already be sold out, and likely closer to the estimated completion date (and therefore not having to wait 3-5 years if they are interested in purchasing a new property).
Is this allowed?
Assignments are common with new construction projects. Some builders will allow it with certain conditions (ie. Subject to builder approval, subject to an assignment fee/penalty). Some builders even offer it as an incentive when buying (ie. Free assignment).
How it works:
- Assignor assigns to the Assignee its interest and rights in the Original Agreement with the Builder
- Assignee “assumes” and agrees to perform all of the Assignor’s obligations under the Original Agreement
- Typically Assignment Agreements are conditional on Assignor’s ability to get Builder’s consent (and Assignors usually are the ones paying the Assignment Fee)
- Once consent is granted, the Assignee typically pays the amount of the deposits (plus interest from the Builder) originally remitted to the Builder, to the Assignor, and essentially steps into the shoes of the Assignor until title has been transferred
- Balance of the Purchase Price of the Assignment, less the amount of the Original Purchase Price, is typically paid by the Assignee to the Assignor at the time of final closing (ie. Title transfer); any “profit” earned by the Assignor is subject to HST
- Assignee is responsible for interim occupancy fees, all closing costs as outlined in the Original Agreement (development charges, utility hook-ups, Tarion Warranty, HST (if not owner-occupied), unassessed property taxes, legal fees, and land transfer tax (on the original purchase price)
- On title transfer/final closing, the Assignee becomes the actual owner of the property
Who is able to purchase a property through an Assignment?
- Investors and end-users
- Must have access to sufficient cash to remit the initial return of deposit to the Assignor upon a firm/approved Agreement, and then the payment of “profit” on title transfer, as well as all of the closing costs, land transfer tax, and HST on the purchase (certain exceptions apply re: HST)
If you are interested in purchasing/selling a property through Assignment, please reach out to us so we can walk you through all of the steps required for a successful sale. We can also set you up with real estate lawyers who are familiar with these transactions and advise you accordingly.