Assignment sales are starting to find their way into the Hamilton real estate market. While currently quite common in the markets of Toronto and Vancouver, the concept of an assignment sale has yet to be thoroughly discussed here in Hamilton. Because not much is known about assignment sales in Hamilton, outside of lawyers and a few REALTORS, the Doyle Team, Your Real Estate Professionals, decided we would educate the public on this growing practice.

A quick rundown:

Assignor = The person/company/entity who made the original purchase from the developer and is now selling the rights to the agreement.

Assignee = The person/company/entity who purchases the rights to the agreement from the Assignor (the original Buyer)

Essentially, the Assignor transfers its rights to the Assignee.

When an Assignor is selling a purchase agreement, the prospective Assignee is not purchasing a property from the Assignor – they are buying the “right” to acquire the property from a third party, the developer. There are many reasons someone may want to assign their purchase: Maybe they’ve gotten cold feet, had a change in circumstances before their closing date, or maybe their plan was always to assign the unit as an investment strategy, which is typically the case. In layman’s terms, “stuff happens” in life and you may need to sell your interest in the property, or this may just be a real estate investment opportunity. Why would someone be interested in purchasing a unit through an assignment? Not everyone wants to hold on to a unit for years for the full development to come together, and buying now with the opportunity to occupy is attractive. A potential buyer of an assignment may not have been aware of the development, been unable to buy, or did not have the opportunity to buy from the developer previously but may very much want to live/invest in the building – assignment allows for that to happen.

There are several legal assumptions made when purchasing an assignment: First, the Assignor assigns its interest and rights in the original agreement with the original seller to the Assignee; second, the Assignor assigns its interest in the original “deposit” (more on this later); third, the Assignee “assumes” and agrees to perform all of the Assignor’s obligations under the original agreement; lastly, the Assignee assumes the obligations of the Assignor.

For this deal to be successful, the Assignee would be required to pay the Assignor the original deposit paid to the developer/builder by the Assignor, plus the increase in value since the original purchase agreement was formed. Once these funds are transferred the deal is more a less considered complete. Here is an example of the process:

Example

Real estate investor Bob purchases a unit from the Developer on day 1 of sales June 20th, 2014, for $400,000. To secure the unit, Bob provides a $20,000 deposit in Trust to the Developer. 6 months prior to project completion, it’s now June 2017, Bob decides to assign (sell) the unit for $475,000. Sally an interested Buyer, makes an offer to the Bob, and they reach an agreement for $470,000. Sally will have to pay to Bob $90,000, the equivalent of the original deposit and increase in value since the original purchase. Once Sally pays the $90,000 to Bob, the Assignment is considered complete and Sally is the rightful Owner of the original Purchase Agreement with the Developer.

Some risks associated with an assignment sale are as follows:

Risks for Bob, the Assignor:

• Agreements are not always assignable. They require the Developer’s consent and fees are often associated with such consent. Be sure to review the original Agreement of Purchase and Sale to fully understand what it takes to satisfy the Developer of the Assignment.
• Even if consent is provided, the Developer may not allow the property to be publicly displayed through Realtor.ca, limiting your ability to actually Assign the right.
• If Sally, the Assignee, does not close the deal with the Developer, Bob remains obligated to complete the purchase.
• The increase in value plus the deposit can become a large sum of money for someone to come up with and this is often not financeable.

Risks for Sally, the Assignee:

• Not getting what you bargained for. Be sure to have a lawyer review all documents provided by the Developer to ensure you get what you think you’re getting.
• Sally will incur “Occupancy fee’s” between the time of the completed Assignment and Completion of the development, known as Registration of the Condominium Corporation.
• Be aware of other fee’s that may be due on Completion of the transaction with the Developer. ie, utility hook up’s, key deposits, etc.

What is an Occupancy fee?

Condo buildings often have upwards of 100+ units, and not all are completed at the same time. Once your unit is ready and safe enough to occupy, the Developer will issue you Occupancy, allowing you to move in. You can now occupy your unit, however, you are not yet able to obtain a mortgage. The Condominium Corporation must be registered for you to obtain a mortgage, and this can only be done when the entire building reaches a certain level of completion. Without the registration of the condo corporation, your unit is not entered into the Land Registry System. Without being registered, you cannot obtain a mortgage on your property. You, therefore, are in possession, but not ownership. For this possession, the Developer receives a fee equivalent to the interest owing on the amount outstanding on the purchase price. In the case of an assignment, the original purchase price Bob had is used, not Sally’s new purchase price, although the amount owing to the Developer remains the same. For example, Bob purchased the unit for $400,000 and provided a $20,000 deposit to the Developer, therefore Bob owes the Developer $380,000. The occupancy fee would be equivalent to the interest on the balance owed of $380,000. Typically the larger the building and the lower the floor of your unit, the longer your occupancy period will be.

Assignments are nothing new and have applications outside of condo ownership. The Doyle Team, Your Real Estate Professionals, have been assigning deals since 2009. We facilitate them locally in our Hamilton market for both our Residential and Commercial real estate practice and have completed successful assignments in Toronto’s condo market as well.

We currently have multiple opportunities to purchase assignment deals. We are also always looking for more opportunities to represent others looking to assign their purchase agreements. Please contact The Doyle Team, Your Real Estate Professionals, with any questions, comments or interest you may have to purchase or assign a deal. Our commitment to exceed your expectations and ensure satisfaction has been proven since 2009.