Welcome friends, to a brand-new topic which I wanted to discuss with you today and that is ‘Assignment Sales’. Why and how assignment sale works for both buyers and sellers.

As you, would have noted the market, has been mostly inclined to buyers for over a year now, things towards dramatically changed and since July 2022 market has sort of plateaued.  In such markets, the demand becomes low and the supply increases. 

Speaking of Assignment Sales, it was traditionally a clause that the purchaser takes when buying a pre-construction home from a builder. This clause is meant to assign your contractual obligation of purchase to another buyer or assignee. This provision is placed in the original Agreement of Purchase and Sale to deal with any change in situation for the purchaser, the changes could be financial, logistical or personal which may require the consumer to assign his right to purchase at the agreed amount to a new willing buyer. It could be that the original buyer’s family situation or work location changed during the construction time, the location of the purchase doesn’t work anymore for them and they are looking for an assignment.

This process of assignment is also called paper flipping, as in an Assignment Sale the new purchaser is not able to see the property in person and is buying based on the specifications, features and floor plan available on the paper. The assignor or the original purchaser provides the original Agreement of Purchase and Sale to the assignee or the new buyer, this needs to be vetted by the assignee's solicitor.

Let us discuss point by point why an assignment works for a Seller:

Transfer of obligation - The Seller (Assignor) is able to transfer his contractual obligation to perform the final closing or completion of the property and arrange for the necessary mortgage in order to complete the transaction and arrange the funds. They can get away with arranging the necessary mortgage to complete the transaction.

Recovery of deposit - The original buyer can reclaim the deposit made to the builder, possibly with a premium if the market conditions are favorable.

Land Transfer Tax - The Seller is not paying the land transfer tax which is due on the closing, this is in fact paid by the new buyer or the assignee as its due only on the closing. 

Utility Connection Charges - For the new home there are some utility connection charges, for the hydro, water, gas services, if applicable to the unit. This cost is transferred to the purchaser upon completion, in assignment the assignee pays these costs. 

Development Charges - The development charges are generally capped, these are the cost which are in-built into the original purchase price. However, there are situations when the municipality requires more from the builder to cover up the development levies since the time original permit was issued. These costs are capped in the original agreement, but would mean that some of it till the capping limit might be required by the new assignee to chip in at the time of completion. 

Now, let's explore the perks for buyers:

Reduced Purchase Price – Generally since the assignment purchase is done on paper, it would always be negotiated at a price slightly lower than the price of a similar product in the neighborhood. By product, I mean to say similar property type and specifications. This price benefit is due to the fact that the assignee is willing to commit to the purchase just by looking at the specifications, and plans on the paper. The other reason is that the assignee is saving the seller from their contractual obligation to the builder, so they have the upper hand in the negotiation to get it at a favourable price to them.

Less Waiting Period – In the pre-construction world there is a waiting time involved from the time you ink the purchase with the builder to the final delivery. It varies based on the fact whether the purchase is a high-rise condo or a low-rise freehold dwelling. In the assignment scenario, these sales typically occur closer towards the occupancy, and this is the reason that the assignee or the new purchaser experiences minimal waiting time to get into their new home.  

Brand New Property – Assignments can happen for resale contracts as well but they are not as commonplace as how they are with pre-construction world. The assignee or the new buyer receives a brand new and never lived in property.

I should highlight here that they require lot of challenges and restrictions as well for both Seller and Buyer. But, if navigated well it presents as an opportunity for all parties involved. 

Let me highlight some pitfalls as well for assignments. 

Ontario New Housing Rebate - The new Buyer or Assignee should have enough cash backup as there could be a HST component which they might need to cough up during the completion, generally the builders recover it from the government based on the undertaking if the buyer is using the dwelling as their own residence. However, in assignments sometimes the builders would want this Ontario Housing rebate amount from the assignee and in that case the new Buyer would need to come up with this extra cash at the time of completion. The maximum Ontario new housing rebate amount that is available is $24,000. The assignee would then be required to claim it back from the CRA, upon occupation.

Advertising Restrictions - For the Sellers its not easy to expose or list the assignment opportunity on platforms like MLS, the majority builders would have restrictions which would be specified in their original Agreement of Purchase and Sale. Advertising of any assignment opportunity would require consent from the builder and might limit the platforms available to the Seller, in order to get proper exposure.

Too close to the finish line – There would be some situations where you are coming too close to the final closing date and builders might not provide the approval for the assignment as it is too close to the finish line. The builders would not want to introduce a new assignee into the picture when the closing is short. So, in order to navigate the assignment process it needs to be done well in time for everything to go smoothly.

Tax Implications – There would be tax implications which should be discussed by the Assignor with their accountant as any profits if you realize during the process of assignment would be liable for taxes and rather considered as business income. The CRA would generally not considered the investment as a capital property, and would not allow them to have capital gain exemption unless they are able to satisfy the CRA with their personal situation on why they needed to assign. This needs to be discussed with your accountant. 

Assignment Fees – This is another fees which the assignor would need to pay to the builder to get the paperwork done to transfer their rights to the new purchaser. This cost is outlined in the original agreement of purchase and sale between the original purchaser and the builder.

In a nutshell assignment sale works on various levels for both parties, however, needs to be executed carefully with these pointers consulted with legal and financial experts to have the necessary peace of mind and be prepared for a smooth outcome.

Wish you all the very best! Reach out to our dedicated team at Elixir for any queries you have in Real Estate and we will do our best to help.

Mudit Mehta 

Broker of Record

ELIXIR REAL ESTATE INC.

Off: 416-816-6001 | [email protected]

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