What exactly is an assignment? In the simplest terms it’s the right to sell your purchase contract to someone else before you close and take possession of your property. In this case you’d be the assignor and the buyer of your contract is known as the assignee.
If you’re looking at buying a new property you’ll come across a section about assignments in your purchase contract. And you’ll see assignments on MLS too, when buyers decide they want out of their contracts.
In a perfect world assignments would be easy and stress free but that’s not really how things work 99% of the time. Taking on an assignment is even riskier than buying directly from the builder. Yes, you will have that new home smell and feel plus a Tarion warranty but you’ve also got the added risk of hidden costs and tax implications due to the assignment.
Because of excessive speculation, especially on the west coast and in Toronto, it’s now much harder to assign than it was half a decade back. You’ll find some builders who won’t allow this at all while others will permit you to assign but make the terms so onerous that it’s practically impossible to assign. I’ve seen clauses that ban the assignor from advertising, putting signs up, or even using MLS. And they wouldn’t permit your assignment until 100% of the development was sold out. There’s often a hefty fee attached as well.
This is why I am so insistent that you hire a good real estate lawyer if you purchase new. You’re simply not going to read, right then and there, the 200 pages the builder’s sales rep is asking you to sign. Your lawyer will read it though, and they’ll show you the really important stuff like assignment clauses.
If you are an assignee, legal representation is equally important. In this case there are tax implications and the issue of hidden and unforeseen costs to deal with. The initial purchase contract from the builder needs careful scrutiny so that you know exactly what has been paid to the builder and what is owning (if any) mid-way through the build process and finally upon closing. The assignor will have made at least one deposit if not more before assigning the contract to you.
You have tax obligations with an assignment. More often than not, the assignor will make some profit on the assignment. This makes the property liable for HST on the assignment purchase price and not just the builder’s original price.
And what of the HST rebate? If the assignor was purchasing for their own use, the builder will apply for the new home buyer’s HST credit in buyer’s name and keep the money. But this is problem for the assignee if they are an investor. They can’t claim the new home buyer’s HST credit and the builder will make them pay the HST in full. The investor assignee would later claim another different HST rebate as a landlord.
Does this stuff seem pretty messy? Well yes, because it is. Tread carefully when considering assignments and fully understand what you are getting into. A lawyer who understands the risks involved and also the tax implications is crucial to your financial well being.