Author: Warren Gilmore - Law Student
Edited By: Ryan Carson
Assignment agreements have become increasingly common for individuals involved in the process of purchasing new build real-estate. An assignment can be an attractive option for both the original purchaser of a reconstruction property and a newly prospective buyer. For example, a new development may already be entirely sold out, but the option of purchasing the property via assignment may allow prospective purchasers and second chance at property they wish to acquire. Alternatively, an assignment agreement provides the original purchasers an opportunity to unload their obligations under the original Agreement of Purchase and Sale. Perhaps circumstances in their life have changed, and the purchase is no longer viable, or perhaps they are presented with the opportunity to assign the agreement to a third party for a profit.
An Assignment Agreement is an independent contract that is drawn up between parties in relationship to an already existing Agreement of Purchase and Sale. The new contract creates a legal relationship between the two parties, formally known as the assignee and the assignor.
The Assignor is the original purchaser of the pre-construction property. They are already a party to an existing Agreement of Purchase and Sale between themselves and the builder of the subject property. The Assignor is transferring or assigning their obligations under the existing Agreement to a third party.
Conversely, the Assignee is the party who wishes to purchase the Assignor’s interest in the existing Agreement of Purchase and Sale. In essence, the Assignee is purchasing the new build property from the Assignors.
The majority of these agreement come to fruition when a pre-construction property has begun to appreciate in value. The original purchaser may now be in a position to profit from their early investment. In addition to selling the property to the Assignees for an increased price, the Assignors will often include in the Agreement an assignment fee that the Assignees will be required to pay in acceptance of the assignment Agreement.
When involved in an assignment Agreement as either the Assignee or the Assignor, it is essential to retain the services of an experienced real estate lawyer. Pre construction Agreements of Purchase and Sale will always include a specific provision relating to potential assignments of the Agreement. The majority of these Agreements provide that the Purchaser will be required to obtain the permission of the Vendor in order to legally assign the Agreement to a third party. However, most of these provisions go on to state that permission for assigning the Agreement is at the sole and absolute discretion of the builder and can be arbitrarily withheld. It is important to understand the applicable clauses of your Agreement when considering assigning the contract to a third party. Your lawyer will work with you to correspond directly with the Vendor’s representation in order to give you the best chance of successfully assigning the Agreement.
Further, your lawyer will also work to ensure that your interests are protected with regard to potential HST concerns. Specifically, if the assignment agreement involves an appreciated purchase price, or an assignment fee, you lawyer will work closely with your accountant and the CRA in order to fully understand the potential tax implications the assignment Agreement may create.
Articles written by Warren Gilmore:
Separation Agreements and the Transfer of Matrimonial Property Estate Planning for Reconstructed Families
Sale of Canadian Property by a Non-Resident
The Prudent Real Estate Investors Checklist Alternative Approaches To Purchasing A Recreational Property Power of Attorney General Overview Power of Attorney General Overview - Continued Non-Resident Speculation Tax
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