Guide to Condo Assignment Sales

If you’ve looked into purchasing pre-construction condos in Toronto, you may have come across the term “assignment sale.” Often, developers will allow assignment sales as an added incentive for buyers. Or you’ll come across an agent or seller listing an assignment sale of a pre-construction condo.

The recent growth of the pre-construction condo market has seen a rise in this type of transaction, so buyers need to understand how assignment sales work.

What is an Assignment Sale

An “assignment” is a real estate transaction where the original buyer (the “assignor”) sells their buyer’s rights to another buyer (the “assignee”). In Toronto, assignments are common in pre-construction condos.

The assignor is the original buyer of the condo unit. The assignor purchased the unit 3-5 years ago directly from the builder in the pre-construction sales phase. In an assignment transaction, the assignor is the seller of this original purchase and sale agreement.

The assignee is the buyer of the assignor's agreement of purchase and sale. In an assignment transaction, the assignee is the new buyer of the assignor’s agreement of purchase and sale.

When Does an Assignment Sale Transaction Happen?

Assignments occur before closing—before the buyer officially assumes ownership or title of the condo. This is why, at this stage, the buyer is essentially selling their “buyer rights” or just the contract.

Who Benefits from Assignment Sales?

Assignments can be a valuable tool for both buyers and sellers.

Original buyers, referred to as the “assignor,” benefit from not having to complete the condo purchase. Consequently, the assignor is not responsible for covering any closing costs. If occupancy has not yet occurred at the time of signing, the assignor is exempt from paying occupancy fees. Instead, the new buyer, or assignee, takes over and completes the purchase with the developer. Given the extended lead times typical of pre-construction condos between the purchase and closing, original buyers find the option of making an assignment sale reassuring and beneficial since they are not locked into a contract. More aggressive real estate investors seeking immediate returns utilize assignment sales to exit their positions and realize the margins on pre-construction condos before closing.

New buyers, known as the “assignee,” gain several advantages, including a favorable price compared to other completed condo properties on the market. Assignees also acquire a brand-new, unused home. If the assignment occurs before the selection of finishes, the assignee can make final color and finish selections to customize the unit according to their preferences. Assignees also experience a shorter closing period compared to purchasing in the early launch phase of a pre-construction project. Lastly, and notably, assignees are required to reimburse the assignor for all previously paid deposits. These deposit amounts are calculated based on the original contract purchase price, not the current market value.

Risks Associated with an Assignment Sale

For new buyers, known as the “assignee,” when you purchase an assignment, you assume all the terms and conditions outlined in the original agreement of purchase and sale (APS) contract. If the original buyer did not have their lawyer review the agreement to ensure aspects like levies were capped, those risks are transferred to you. To protect themselves, the assignee should ensure that the assignment agreement includes a clause making the offer conditional on their lawyer reviewing the original APS.

The assignee is also responsible for all the costs associated with purchasing a brand-new unit, including Tarion Warranty fees, builder fees, development levies, utility connection fees, and contributions to the Condo Board reserve fund.

For original buyers, referred to as the “assignor,” their risks may include responsibility for any assignment fees charged by the builder. If the assignee (buyer) cannot complete the transaction, the builder may require the assignor to fulfill the terms of the original APS.

Once the assignment agreement is agreed upon and executed, the builder will exclusively communicate with the assignee, making it challenging for the assignor to receive important updates. Therefore, it's crucial for the assignor's lawyer to maintain contact with both the builder and the assignee's lawyer until the Final Closing.

Delays in Occupancy or Closing Dates

The assignment remains valid regardless of delays. The assignee has taken on the agreement and all buyer’s rights and responsibilities.

The Assignee is Unable to Close

Typically, the assignor is not released from closing, and both the Assignor and Assignee will be liable. We advise consulting a real estate lawyer to understand the terms and conditions with regard to assignments in the original agreement of purchase and sale.

Costs Associated with Assigning a Unit

Developers typically charge an administration fee to process and approve assignment transactions. Both assignors and assignees are also strongly encouraged to involve a lawyer, so there are legal fees to consider.

Payment of the Interim Occupancy Fees

Typically, the assignee will pay any associated occupancy fees and any final closing costs unless negotiated otherwise in the assignment terms.

When Does the Assignor Receive Money?

Payment terms vary by agreement and are negotiated between the assignor and assignee. Typically, the Assignor gets paid (partial or full deposit amounts) when the contract is signed, the Assignee closes and gets legal title, or when the Assignee moves in and occupies the unit.

Who Is Entitled to the Interest Accrued by the Original Deposits Made by the Assignor?

The developer will likely pay the interest to the assignor; however, this can be specified in the assignment terms.

Tax Implications of Assignments Sales

Buyers and sellers are also encouraged to get advice from a tax accountant. There are tax implications (GST/HST) where it is determined that the Assignor’s primary intent was to flip the property for profit.

Steps Involved in an Assignment Sales Process

Working with an experienced agent when dealing with assignment transactions is crucial. Real estate assignments are legally binding, and it's important to understand the clauses and their direct impact. Buyers and sellers are also encouraged to seek legal advice.

Ensure the original Agreement of Purchase and Sale includes an Assignment clause, and comprehend the terms and conditions set by the developer for assignment transactions. For example, some developers may include restrictions preventing assignment sales until a certain percentage of the building has been sold directly by the developer, typically 90-100%. There may also be additional restrictions on advertising or listing your unit for an assignment sale. Each developer and project is different; typically, developers must grant permission for unit assignments.

Find a new buyer, the “assignee.” Finding a buyer can be challenging if a developer prohibits listings and advertising. It's crucial to work with an agent who specializes in assignment sales to navigate these restrictions and find a buyer.

Complete the required paperwork. Assignment sales involve extensive paperwork, and the Assignment Agreement must protect the interests of all parties involved. The diligence of an experienced agent and lawyer is crucial here due to important considerations such as developer approval, lawyer reviews, responsibility for HST, occupancy fees, levies, and closing costs, among others. Additional factors to consider include interest payments on deposits held by the developer and incentives per the original Agreement of Purchase and Sale to be credited by the developer at final closing.

Assignments are valuable tools offering benefits to both sides of the transaction, assignors and assignees. Due to the complexity of the clauses and considerations involved, assignments can become intricate, underscoring the importance of collaborating with an experienced agent and a real estate lawyer to mitigate risks.

Are you considering an assignment sale or interested in learning more? Drop me a line and let’s start talking!