Assignments: What You Need to Know and Why

12 July 2018
Joshua Chisvin

An assignment is a sales transaction where the original buyer of a property (the “assignor”) allows another buyer (the “assignee”) to take over the buyer’s rights and obligations of the Agreement of Purchase and Sale, before the original buyer closes on the property — that is, where they take possession of the property. The assignee is the one who ultimately completes the deal with the seller.

In other words, an assignment clause allows the buyer of a home to sell the place before they take possession of it. And in Ontario, assignments are more common in pre-built homes and condos than on resale properties, but they are possible on any type of trade.

Here’s what you need to know and why:

ARE ASSIGNMENTS LEGAL? WHY DO THEY HAPPEN?

When done properly, assignments are legal and can be a useful tool for buyers and sellers. An example of this would be a situation where a buyer’s financial or personal situation changes before closing. Assigning allows them to pass along the contract to another buyer, without backing out of the deal with the seller.

For instance, someone could buy a condo that is still under construction and might not be ready for a couple of years. The buyer’s work or family situation could change during that time, causing them to change their mind about living in the condo they purchased. Another example may be where a buyer runs into financial difficulties to close on an existing house and wants to find another buyer rather than risk the financial penalties that might come with having to try to back out of the deal.

WHY IS THERE SO MUCH ATTENTION SURROUNDING ASSIGNMENTS?

Media reports out of British Columbia in 2016 suggested that some real estate professionals in that province may have been using assignments to make more money on the deal without telling their seller clients about what they are doing. When there is a registered real estate professional involved in a transaction, they have a number of obligations to their client. Some of those obligations involve disclosing if they have a personal interest in the transaction that goes beyond the commission they stand to earn on the transaction.

WHAT ARE THE OBLIGATIONS OF REAL ESTATE PROFESSIONALS WHEN IT COMES TO ASSIGNMENTS IN ONTARIO?

Ontario has rules requiring real estate professionals to disclose any personal interest in a purchase or sale. There would also be disclosure obligations if the same brokerage were representing both the buyer and the seller in a transaction and the buyer intended to assign the purchase to another buyer. In this case the brokerage would have to inform the seller. The seller could then make an informed decision about whether to include an assignment clause in the Agreement of Purchase and Sale.

In Ontario, all registered real estate professionals have an obligation to act with fairness, honesty and integrity when dealing with others in a real estate transaction, while protecting and promoting the best interest of their clients. The seller’s representative is expected help the seller weigh the pros and cons of giving the buyer the ability to assign the property to another buyer.

WHAT ABOUT THE TAX IMPLICATIONS OF ASSIGNMENTS?

I advise anyone participating in an assignment to seek the advice of a tax specialist. Generally, assignors can expect to pay tax on any profits they realized from the assignment. Land transfer taxes are paid by the assignee, as they are only due when the sale closes (that is when the property actually changes hands).

HOW CAN HOME BUYERS AND SELLERS PROTECT THEMSELVES?

As with any contract, it’s crucial for buyers and sellers to know what they’re signing. Real estate contracts are legally-binding, so getting legal advice can be a smart idea. It’s important to know what each clause means and how it will affect you. Buyers and sellers are encouraged to ask their real estate professional to explain the clauses in the contract.

Beyond contracts, I encourage buyers and sellers to do their homework. That means interviewing several salespersons, getting several comparative market analyses to understand what their home is worth and having realistic expectations about timelines, pricing and how the process will work.

SOURCE: Real Estate Council of Ontario

  Real Estate