What Is An Assignment And How Does It Work?
For some people, the dream of condo living ends before it even begins. Some people decide that they don’t want to live in a certain building or find themselves in a financial cul-de-sac after they’ve signed the agreement. Instead of letting the sale become derelict, an assignment allows the individual to sell their interest in the property to someone else.
What Is An Assignment?
Joe wants to buy a pre-construction condo. He comes up with a down payment and signs and an agreement with the builder. However, Joe suddenly gets laid off from his job. In order to keep himself financially stable, he won’t be able to take possession of the condo unit. Joe’s friend Sara is interested in buying the unit from him. In order to do so, an assignment is drawn up releasing Joe from the agreement. Joe becomes the assignor while Sara becomes the assignee. An assignment allows Sara to take possession of the condo and become the purchaser.
An assignment gives the seller a chance to sell their interest in a property before they’ve taken possession of it. The assignment is a legal document that outlines the assignee’s promise to purchase the unit and fulfil all the obligations and adhere to the rights outlined in the original agreement. Assignments are generally reserved for pre-construction condos, but, it is possible to assign any type of property as long as there are no clauses against assignment in the original agreement.
Are Negotiations Allowed During An Assignment Sale?
When the assignee takes over the original agreement, everything that is laid out within it must be honoured. The assignee cannot negotiate new terms or a lower price. In other words, if the assignor put down a 20% deposit, then the assignee must do the same.
What Are The Reasons Someone Might Assign Their Property?
Most assignments are financial in nature. As in the scenario with Joe and Sara, getting laid off can lead to an assignment. Also, for pre-construction condos, assignments often come into play when something changes during the building period. For instance, your family could grow and you won’t be able to raise your children in a one-bedroom space. Depending on when you buy, pre-construction properties can take anywhere between two-four years to build and a lot can change in the time between when the condo was bought and when you’re supposed to take possession of it.
For some investors looking to make a quick profit, an assignment can help them do so. Although, it may sound strange to invest in a condo only to assign it and make money, it is legal. If this is something you are thinking of doing, work with a real estate agent to ensure you are playing by the rules.
Closing, Taxes And Fees
Most builders allow assignments but charge a fee if a purchaser would like to include one in their agreement. Assignments also require builder approval before they can be finalized and any profit made from it is taxable. The assignee is now responsible for paying the HST and land transfer taxes on the property. Furthermore, you will need to work with a lawyer to ensure the assignment is finalized and that comes with legal fees as well.
In terms of closing, there are two steps when it comes to an assignment. The first closing occurs between the assignor and the assignee. The second happens between the assignee and the builder. The first closing sees the assignee giving the assignor the amount of the deposit. The second one sees the assignee paying the remaining sum to the builder along with the land transfer taxes. Once the land transfer tax is paid and the remaining deposit is given to the builder, the title of the property is transferred to the assignee.
How Your Real Estate Agent Can Help
An agreement is a contract that needs to be read carefully. There may be terminology that you are unfamiliar with or clauses that you find absurd. Before signing anything, go over the agreement with your real estate agent. Your agent understands the market and can tell you if anything in the agreement is out of the ordinary and should be questioned. Moreover, Ontario registered real estate professionals are obligated to adhere to a strict code of ethics that ensures they act with fairness, honesty and integrity. If there’s something off in the agreement, they will let you know and work on your behalf to correct it or find you a new property to buy.
For The Assignor
Assignment condos come with marketing restrictions. The builder has the right to allow you to assign your agreement but they will limit where you can market it. You cannot post your listing to the MLS or advertise your unit online. If you market your assignment property in a way that violates the rules, you will be considered to be in breach of the agreement and lose your deposit. There are real estate agents who specialize in assignment transactions and will help to sell your property without breaking the rules.