What is an Assignment Sale?
Simply put, it's the sale - or an "assignment" is the sale of a contract to purchase a pre-construction condominium suite. It usually means that the building has not been registered yet, so no one can take ownership of the unit itself. Only the contract can be sold.
Once the building has been registered, you can transfer the ownership title. Until then, it’s just the sale of a contract, but as you will see, there are many advantages to these kinds of sales for both the buyer and seller.
Why do these kinds of sales happen?
There are many reasons someone might want to sell the rights to their unit before it’s been built. For example, someone may have bought a suite that’s three years away from being completed, but recently had to relocate for a job. This buyer may need to sell their agreement to afford a property in their new city.
Another common reason is that a buyer began the purchase process when they were single, but during the pre-construction process they married or are now expecting a child. Suddenly they’ve discovered that the pre-construction one-bedroom suite they bought is not big enough for a growing family.
The “assignment clause” in the purchase agreement comes in handy when these things happen. It allows the original buyer to pass the contract onto somebody else without accruing financial penalties.
These types of transactions are common and fully legal, but whether you are the buyer or the seller, it’s important to work with both an experienced realtor and lawyer who know how to protect your interests.
These deals are more complex than a conventional resale and involve three parties: the developer, the assignor and the assignee. It’s a two-stage process that involves both interim occupancy and the final closing.
In 2017, John Smith buys a pre-construction condominium suite from ABC Developments for $400,000 with a total down payment of 20%, equalling $80,000. The project is set to be completed in 2022.
Original Purchaser (Assignor) = John Smith
Vendor (Builder) = ABC Developments
Original Sale Price by Builder to John Smith = $400,000
Original Deposit Paid by John Smith to Builder = $80,000 (20%)
Funds required to Complete Sale in 2022 to Builder = $320,000
In 2021, John discovered he will be relocated to a new city. He can’t afford to buy a new home while holding onto his pre-construction condo.
Fortunately for John, the assignment clause allows him to sell the contract for his unit before the building is completed and registered!
John has decided to sell the contract to his unit to Jane. Due to the changes in the market, he was able to sell the contract for $500,000.
Assignment Price Agreement: $500,000
Original Purchaser (Assignor) = John Smith
New Purchaser (Assignee) = Jane Doe
Vendor (Builder) = ABC Developments
Assignment Total Deposit by Jane Doe to John Smith = $180,000, due immediately. This includes a deposit of $80,000 + profit $100,000. (Seller's profit is Assignment Purchase Price - Original Purchase Price) The amount and timeframe for this payment can also be negotiated.
When the building is finished construction in 2022, Jane can move in during the “interim occupancy” period. The city has completed its inspection and the new building is registered. Jane will register the mortgage and begin making mortgage payments for her new home.
In 2022 when the building is complete and ready for interim occupancy, Jane Doe will move into the unit during the occupancy period. At this point she will begin paying occupancy fees to the developer. These fees take the place of mortgage payments and condo fees until the building can be registered.
In 2022 when the building is registered, the official title transfer takes place between the developer and the new purchaser. Jane Doe can finally register a mortgage and start paying mortgage payments and condo fees.
Funds required to complete the sale by Jane Doe to builder = $320,000
Jane Doe now has all the rights to the property, just like any homeowner. Any future re-sale of the property will be a regular real estate transaction.
This is just the basics of an assignment deal. There are more details regarding mortgage rules, and other contract details. Keep reading to learn more! Or you can always reach out to talk with one of our agents. We love to talk condos! This is just a general overview, but each arrangement is unique with its own rules, terms, and conditions.
We advise everybody who is thinking of buying or selling a pre-construction assignment to seek advice from a real estate agent, lawyer and tax accountant. Contacting an agent is important because assignors may have to pay a fair amount of tax on any profits they received from the completed sale
Most builders allow assignment sales and you will often see these listings on REALTOR.ca. However, there are some rules in the original purchase agreement that must be followed. They are also more complicated than a regular sale because a mortgage cannot be obtained on the closing of the transaction, only once the building has been registered. Other issues such as occupancy, reimbursement of the seller’s deposits and more must be taken into account.
Ready To Chat About Assignments? Connect With Us Today!
Is it Worth Buying An Assignment?
Assignment purchases can actually give you some of the best deals in the GTA condo market because fewer people typically seek out these types of sales. In addition to fewer buyers, many real estate agents aren’t familiar with the structure of an assignment sale and often won’t bother to advertise these listings. Even lawyers may not know the ins and outs of an assignment sale.
The high demand in the resale market can potentially force buyers into bidding wars, which can cause people to overpay for their suite. Buying a contract through assignment gives you the opportunity to avoid excessive competition and often means you pay much less than you would for a resale unit.
The assignment condo market can be mutually beneficial for both the buyer and the seller. The seller can list their unit without having to wait until the building is completed, and buyers can save time and potentially thousands of dollars.
Another advantage to buying an assignment agreement is that you will get a brand-new unit that automatically comes with the seven-year Tarion Warranty Program. Let’s not forget that you’ll likely move into the unit sooner instead of waiting the usual 3 to 4 years for the building to be completed!
Let’s recap some of the advantages for buyers:
Options: More choices when there’s a shortage of listings in the market.
Less Competition: Fewer people look at these type of listings.
Peace: Fewer people looking at these sales means there’s less chance for a bidding war. You get to avoid bidding wars and paying more than you can afford just to outbid another buyer.
You Become A VIP: You will likely inherit VIP incentives like the seven-year Tarion Warranty Program and other incentive from the builder like credits, upgrades, capped developing charges and much more.
More Choices: Depending on how far along construction is, you may still be able to select your own finishes, colors and upgrades.
Negotiate: Sellers usually need to sell because they need to drop their equity. This can give you leverage for prices, deposits, and closing dates.
Brand New Suite: You will get your unit much faster instead of waiting 2-3 years like in a typical pre-construction contract. Often occupancy is couple of months away.
Taxes: You may also benefit from saving on taxes like GST and HST.
We love to chat about the assignment sale market, so don’t wait, give us a call and let’s find you a great deal.
Selling an Assignment
Traditionally, owners who wanted to sell their pre-construction units had to wait months or years for the final closing date to officially put their suite up for sale. By this time, they could have already put significant funds into occupancy fees and closing costs.
Assignments sales are not a new strategy in Canada, but compared to other countries where condos have been around much longer, the process is not always well understood by sellers, buyers, agents, lawyers, and even lenders. Sellers who have been taking the time to learn about assignments have been reaping the rewards by saving time and maximizing their profits.
These transaction are becoming increasingly popular. Think of it as a sort of condo flipping. Sellers can transfer their property rights during or before interim occupancy and avoid paying hefty carrying and closing costs, which helps them get their deposits back.
Most builders allow assignment sales, although they often have certain rules that must be followed. Even with strict rules in place, however, there are options available for you.
Let’s take a look at the advantages for sellers:
Re-invest: You are able to pull your equity out and re-invest in other projects.
No Carrying Costs: You can avoid paying monthly fees like occupancy fees that can sometimes last for up to two years.
No Closing Costs: You don’t need to take out a mortgage or incur any other closing costs.
Play The Market: Take advantage of the hot condo market, sell now before the suite is completed and re-invest in another project. It’s one of Toronto’s major economic drivers, and it’s showing no signs of slowing down!
Ready To See How You Can Make Your Real Investments Dream A Reality? Register Here For Projects That Meet Your Needs
What is an assignment sale?
It is the sale of a pre-construction unit. This means, instead of selling an already built unit, what’s being sold is the contract or right to acquire the property upon completion. The original purchaser (the "assignor") of a property sells their obligations under the original contract to a new purchaser (the "assignee").
The assignee will generally assume all of the assignor's duties and obligations, such as interest payments, taxes, and maintenance fees during interim occupancy. Upon completion, the assignee is granted the title to the real property and will incur all final closing costs.
Can any kind of purchase agreement involving a real estate transaction be assigned?
Under normal circumstances, any purchase agreement can be assigned, providing the agreement doesn’t prohibit it.
Is an assignment legal?
It is legally permitted unless prohibited in writing in the original agreement of purchase and sale. In some cases, the developer may charge the assignor a fee for this kind of sale
Is it necessary to get permission from the developer to assign the contract?
That depends. You need to consult your purchase agreement to get the specifics. Generally developers will not permit an assignment sale without their consent, which means you’ll need to consult with them and a legal representative. There have been incidents where an unauthorized assignment sale has resulted in of the original agreement being terminated, and the deposit withheld!
Is there a standard legal form for these type of sales?
Yes, there are two: OREA Form 150 Assignment of Agreement of Purchase and Sale Condominium and OREA Form 145 Assignment of Agreement of Purchase and Sale (including applicable schedules.) In most cases, the developer will have their own form as well.
Will either the assignor’s or assignee’s lawyer’s services be adequate?
It is essential that the assignor and assignee each retain a lawyer with expertise in this area of real estate.
Can the Assignor’s REALTOR® market on the MLS?
Sometimes. Double check with your builder, as it depends on whether they permit advertising.
What happens if the construction, occupancy, closing, or unit transfer date is delayed?
In the event of a delay, the agreement is still valid. This means the assignee has agreed to take on the agreement and all responsibilities associated with it, including delayed construction or occupancy.
What if the Assignee doesn't close?
This is no different than any other property sale, meaning the assignor, in most cases, is not released from the obligations under their original purchase agreement. In this situation, both the assignor and assignee will be liable.
What is the cost of assigning an Agreement of Purchase and Sale?
If the developer consents to the arrangement, there will generally be an administration fee and legal fees. These fees will vary. Consult the original purchase agreement and the developer for specific information.
When does the Assignor get their money?
This generally depends on the closing date and the terms of the agreement that the assignor and assignee agreed on. Usually the assignor is paid when:
- the assignee takes possession or,
- when the developer approves the process, if applicable or,
- when the assignee obtains legal title
Who gets the interest, if any, payable by the builder on the original deposits?
Unless otherwise specified, the interest is likely to be paid to the assignor.
Who pays the interim occupancy costs?
Once the assignment is finalized, the assignee will typically pay occupancy costs.
What closing fees are payable?
After the condominium is registered, the builder transfers the ownership title to the assignee. The assignee pays the balance to the builder and any amount still owed to the assignor. Some of the costs the assignor may pay include:
- Estimated property taxes for up to 2 years
- Hydro/water/gas meter installation and connection charges (approx. $500–$700 per meter)
- Development charges/levies (potentially thousands of dollars)
- Tarion New Home Warranty (ranging from $600–$1,900. See Tarion website for fee structure)
- Discharge of builder’s mortgages (approx. $200–$300 per mortgage)
- Builder’s lawyer’s Law Society charge (approx. $70)
- Two months of occupancy fees for reserve fund
- Other amounts set out in the Agreement of Purchase and Sale
These costs are typically not financed with a mortgage. The assignee is responsible for the following additional fees:
- Legal fees and disbursements
- Land transfer tax (provincial and municipal)
- GST/HST rebate
- Municipal levies
If you’re interested in either buying or selling an assignment, you need a realtor who is experienced in finding, negotiating and drawing up the offer for these types of sales. This means you’ve come to the right place! We have a wealth of expertise, knowledge and resources when it comes to assignment sales and we would be more than happy to discuss the idea with you.
For more information please call us today or simply fill out the form below and we will contact you as soon as we can.
We Specialize In Finding Projects That Meet Your Investment Needs. Register Here For All Upcoming Developments
Learn More About The GTA Real Estate Market
Whether you're moving across the city, across the country or around the world, we have the expertise, knowledge and the resources to make your next move exciting and successful.
Awards & Achievements
At RE/MAX, success is celebrated through an established award and recognition program, and we are honoured to continuously have our mission of providing industry-leading customer service and local expertise recognized.