In Real Estate, an assignment of an Agreement of Purchase and Sale (APS) occurs when the original purchaser (Assignor) from the Builder agrees to allow a new purchaser (Assignee) to take over the contract with the Builder. The original purchaser does not have to take possession or title to the property. The new Buyer takes over and completes the property purchase with the Builder.
Why do people Assign?
- Speculation (flip) for profit.
- Life changes ( relocation, marriage, divorce, children, bankruptcy, death)
- Government regulations (new mortgage rules, interest rates, qualification standards)
Benefits of an Assignment
To the Seller (Assignor)
- Avoids Builder closing costs, Tarion fees and Land transfer taxes.
- Seller may not have to pay GST/HST rebate back to Builder (Consult a tax professional with regards to potential GST/HST on increased unit value). Individuals who do not intend to occupy the unit on closing are required to pay this rebate back to Builder. Investors who plan to rent the unit out for at least one year can claim the HST back from the Government but would still have to come up with this significant amount on closing with Builder.
- The Seller (Assignor) avoids carrying costs such as maintenance fees, property taxes, mortgage associated with the unit after final closing while property is up for sale.
- Faster return of deposit (ROI). Most assignments require that all of the Assignor's initial deposit to Builder be returned at the time Builder executes assignment. This frees up Assignor's deposit for other investments and avoiding the long wait until final closing.
To the Buyer (Assignee)
- A great way for Assignee to purchase a brand new unit within a few months of completion thus avoiding the the risk of project being cancelled (lost equity) and long wait time of typical Pre-Construction.
- Buyer (Assignee) receives a price discount over current properties on the market. This is a great way to build equity in the unit as prices typically goes up once the Building is registered and Condos are offered on the resale market.
- Buyer will receive a brand new home with Tarion warranty and depending on stage of construction, the ability to make finish selections.
- Buyer may sometimes take advantage of the deposits made by the Assignor and may be able to put a lower deposit (especially if unit is in occupancy and close to final closing).
Risks Associated with an Assignment
For the Buyer (Assignee) when you purchase an assignment you take on all the terms and conditions of the original Agreement of Purchase and Sale contract. So if the original Buyer did not get their Lawyer to review the agreement to make sure things such as levies were capped then those risks are passed on to you. Assignee can protect himself by making sure the Assignment agreement has a clause that makes offer conditional on your Lawyer reviewing the original APS.
Assignee is also responsible for all the costs associated with purchasing brand new: Tarion Warranty fees, Builder fees, Development Levies, Utility connection fees and contribution to Condo Board reserve fund.
For the Seller (Assignor) risks include responsibility for any assignment fees charge by the Builder. In the event that Assignee (Buyer) can't close the transaction then Builder may request that Assignor closes as per the terms of the original APS.
Builder will also stop communicating with Assignor and deal exclusively with Assignee once they have agreed to and executed assignment agreement. This makes it difficult for Assignor to get important updates. It's therefore important that Assignor Lawyer keeps in touch with both the Builder and Assignee Lawyer.
Tax implications (GST/HST) if it is determined that the primary intent of Assignor was to flip for profit (speak with a tax professional).
The Assignment Process, Continue Reading....
