What is an Assignment?
A common question raised during the pre-construction process is assignments. For those who are not familiar with assignments, it is simply a sales contract entered into by two parties at an earlier date. It is essentially a transfer of the right to purchase that property from the original purchaser to a new purchaser prior to the unit closing. Assignments of sale are very common during the construction stage of new developments by allowing the original purchaser to resell their unit before the sale is completed for the property. Since units in pre-construction are purchased sometimes 3-4 years prior to occupancy, sellers often choose to assign their units before they occupy as their lives may take on a different path. On the flip side, a lot of purchasers may look for assignments to buy before the building is complete. Once construction has started, there are always many assignment agreements floating around as occupancy dates become more accurate. There are however many stipulations that are involved when selling or buying an assignment.
They are as follows:
Selling an Assignment
The first step that should be taken when considering assigning your condo is whether you are indeed allowed to assign your contract. In most cases, the developers will have certain rules that must be followed. For example, some new developments in Toronto stipulated that at $2,500-$5,000 administration fee must be paid, 80% of the building must be sold out, the floor plan that you have purchased must be sold out, it cannot be advertised on MLS, and the builder must give permission for assignments to take place. Once all the criteria have been met, it is recommended that you speak to your lawyer to assist you with assigning your condo.
Buying an Assignment
The first step that should be considered when purchasing an Assignment Agreement is that the assignor is indeed allowed to assign his condo. There can be serious ramifications from the builder if units are assigned without the builder's permission. The process of purchasing an assignment is quite different than your standard real estate transaction as you are purchasing a contract from the original owner of that contract and assuming all of their rights and obligations. Here is an example of how an Assignment works:
Original Purchase Price: $500,000 put down 15% deposit
New Purchase Price: $560,000
*Difference: $60,000 + $75000 (15% deposit) = $135,000 - This amount is paid to the original purchaser of the Agreement of Purchase and Sale
Once the assignment fee is paid to the original purchaser, the new owner is obligated to pay the original purchase price of the property as per the terms of the original Agreement of Purchase and Sale to the developer.
When dealing with assignments, it is extremely important for both the assignor and assignee to seek legal advice as these transactions can sometimes become very challenging. When handled correctly, an assignment can have a mutual benefit to both parties involved.