Legal Matters: About Assignments

An Assignment of an Agreement of Purchase and Sale (APS) is commonly used by Purchasers of real property for a variety of reasons. In the GTA, assignments are frequently used in the condo sector, where individual(s) may purchase a property in the pre-construction stage. In this example, the Purchaser may seek to ‘flip’ the property as its market value has increased during the construction period or sell the property due to changing personal circumstances.

In an assignment, the Purchaser (‘Assignor’) is not directly transferring the property but rather their bundle of rights under the agreement to a third party (‘Assignee’). It is important to understand that an assignment is a contract between the Assignor and the Assignee, which the vendor (the builder in the pre-construction stage example) is not a party to. As a result, while the Assignee may be assuming all rights and obligations pursuant to the APS, the Assignor remains liable to the vendor if the Assignee ultimately defaults on closing.

Assignments present a number of legal considerations that should be discussed with your real estate lawyer. The most basic issues to consider prior to entering into an assignment include:

  • Review of the Agreement of Purchase and Sale: Does it permit an assignment? Is the Purchaser required to use a specific form of an assignment agreement?
  • Pre-Construction Transactions: Does the Purchaser require the builder’s consent to assign the Agreement of Purchase and Sale? Will the builder charge a fee?
  • Deposits and Credits: How are the deposits paid by the Purchaser (‘Assignor’) in the APS and are they factored into the assignment price? The deposits paid by the Assignor to the Builder are usually reimbursed by the Assignee to the Assignor. What credits are provided under the Builder’s agreement and how are these credits being dealt with between the Assignor and the Assignee.
  • The Status of the Construction and Closing Date: What occurs on interim occupancy and the final closing date when ownership of the property is being transferred to the Purchaser?
  • Occupancy Payments and Other Adjustments: What is the amount of the occupancy payment if the Assignee is taking possession of the property subsequent to the occupancy closing? What other adjustments must be made, such as interest on the deposits and the Builder closing costs and incentives?
  • Builder’s Consent and Fees: What is the cost of obtaining the Builder’s consent to the assignment, and who will pay it? Who will pay the Builder’s closing costs?
  • Other Considerations: Are there issues related to non-residency/withholding taxes? How will CRA treat the profit made by the Assignor? Are there issues related to the HST Housing Rebate?

In addition to making a profit on their investment, there are clear benefits to a Purchaser assigning the APS, such as avoiding HST rebate disqualification, and the interim occupancy and final closing costs. However, for new buyers, assignment transactions also present a possible opportunity to acquire a property at a discounted price depending on factors related to market conditions or the personal financial situation of the Assignor.