What is an ASSIGNMENT?
The Legalese
The assignment of a contract occurs when one party to an existing contract (the "assignor") hands off the contract's obligations and benefits to another party (the "assignee"). Ideally, the assignor wants the assignee to step into his shoes and assume all of his contractual obligations and rights.
Important principles of an Assignment
There are 3 parties in an assignment agreement:
- BUYER ONE (Assignor)
- BUYER TWO (Assignee)
- THE BUILDER
Without the BUILDER's agreement, BUYER ONE cannot assign his contract to BUYER TWO.
Taking possession does not mean you own the unit. It means you have the keys, have the right to live there, and you owe the BUILDER a monthly "rent" (the Interim Occupancy Fee). Ownership happens when the building is registered by the BUILDER's lawyers at the Land Titles office and the Buyer's purchase agreement with the BUILDER closes.
Until the property is registered and becomes real estate, you cannot borrow money from the bank using the condo as collateral; that is, you cannot take out a mortgage.
As with the standard Agreement of Purchase & Sale, an ASSIGNMENT OF AGREEMENT OF PURCHASE AND SALE is accompanied by BUYER TWO's deposit. This deposit is normally held in the trust account of the Listing Brokerage until the assignment is effected (BUYER TWO takes possession); at that time the Realtors' commissions are paid and the balance in the brokerage trust account is turned over to BUYER ONE.
How much should the deposit be? This is a matter for negotiation, but at least the usual 5%-10% real estate transaction deposit, or at least the total of BUYER ONE's deposits to the BUILDER — whichever of the two amounts is higher.
Assignment contracts are complicated — be sure to hire a lawyer with experience in this area.
 Considering buying or selling a property by assignment?
Please get in touch — I would be pleased to discuss representing you as your Realtor.
Here is an excellent article on this topic by Toronto Star columnist Bob Aaron, a Toronto real estate lawyer:
It's difficult to sell pre-registration units (Toronto Star, August 20, 2011, p. H15) |
Here's an example in real estate
A person — call him BUYER ONE — signs a contract with a BUILDER to purchase a condo in a building that will be under construction for a couple of years. BUYER ONE makes a number of deposits to the BUILDER as construction progresses, but at a certain point decides he no longer wants the condo. He want to sell out — but because the building isn't finished, there is not yet any real estate for him to sell. The building, and the unit BUYER ONE purchased, only become actual real estate once construction is completed and the condominium corporation is registered at the Land Titles office.
Until condo registration, all BUYER ONE has is his contract with the BUILDER.
And so it is the contract that he sells. Or rather, for an agreed price, he signs over — assigns — his interest in the contract to another person. Call her BUYER TWO.
BUYER TWO agrees to a purchase price that will be made up of three components:
- she will reimburse BUYER ONE his deposits on the condo;
- she will pay the BUILDER the balance owed him as written in the original Agreement of Purchase & Sale;
- and, because the value of the condo has increased with the passage of time and the progress of construction, she will pay BUYER ONE a profit on his investment.
This is quite a bit more complicated than the usual offer to purchase a piece of real estate. But with the help of a smart Realtor and a good lawyer, both BUYER ONE and BUYER TWO will end up very happy with their bargain.
The first step in negotiating an assignment agreement is confirming that the BUILDER permits BUYER ONE to assign his contract. The BUILDER's consent — in writing — usually requires an administrative fee of around $2,000 to $5,000. This fee is normally paid by BUYER ONE.
There are a number of other important issues to be sorted out.
BUYER ONE may or may not have taken POSSESSION of the condo (has the keys and is entitled to move in). Before possession, there may be several more months (or years!) of work on the building before it is completed. After he has taken possession, BUYER ONE is obliged to pay the BUILDER a monthly "rent" (the Interim Occupancy Fee); this could go on for several months until the condo is registered.
Normally in an assignment situation, affer BUYER TWO takes possession, she will live in the condo and pay all the occupancy costs: the Interim Occupancy Fee to the BUILDER, and also any utitility bills, and the monthly resident's insurance premium. These details are terms which must be included in the assignment agreement.
There will be other costs to be negotiated between the two Buyers.
At registration, there will be several thousand dollars in CLOSING COSTS — a variety of educational and utility connection levies (gas, hydro, sewage, etc.) allocated by the BUILDER to the unit owners (typically in the range of $3,000 to $6,000). In an assignment agreement, BUYER TWO normally agrees pays the closing costs.
At registration there will also be land transfer taxes to be paid, both to the province and to the city. In an assignment agreement, BUYER TWO normally agrees to pay the land transfer taxes.
Each of the two Buyers will have their own lawyer, each charging a fee of about $1,200 to $1,500, including certain disbursements. The higher than usual legal fee reflects the complexity of assignments, which involve three parties, three lawyers, and a two-stage process (Intermin Occupancy and then Final Closing). Normally each of the three parties — BUYER ONE, BUYER TWO and the BUILDER — pays his own lawyer.
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