The term “assignment” may be unfamiliar to industry newcomers. In real estate transactions, an assignment refers to the arrangement where the original buyer of a property, known as the “assignor,” transfers their rights and obligations under the Agreement of Purchase and Sale (APS) to another party, the “assignee.”
Assignments: A quick brief
If a buyer assigns a property to another party prior to closing, the original buyer remains responsible until closing, acting as the assignor alongside the assignee (the new buyer) to the seller.
It’s essential to note that this process occurs before the assignor closes on the property and takes legal possession (title). In this arrangement, the assignee steps into the role of the buyer and completes the transaction with the seller, requiring minimal continued involvement from the assignor beyond the closing.
New build assignments require a complex, non-standard process
Assignments for new builds are particularly complex and must be handled differently than standard processes that real estate agents usually follow. When dealing with new build assignments, it’s critical to obtain the builder’s approval through their lawyer and thoroughly review the assignment agreement.
Having a lawyer review the document on behalf of either the assignee or the assignor is advisable, as many issues arise with the drafting of the Assignment APS. One key issue is the allocation of the purchase price. Buyers often misunderstand that, while paying, for example, $600,000 for a property — which includes payments to both the builder and the assignor — they must also reimburse the assignor for their original deposit to the builder. Consequently, the total cost effectively becomes $600,000 plus the return of the initial deposit, a detail that frequently leads to disputes during the Assignment Statement of Adjustments close.
Different, additional charges can lead to widespread buyer confusion & frustration
Also, the Statement of Adjustments provided by the builder may include various charges — such as for development, levies, Law Society fees and potential legal fees for discharging title charges — that can complicate the financial picture for assignees.
For condominium assignments, there will also be adjustments for common expenses and occupancy fees. The pandemic has caused significant increases in these charges, with utilities that once cost $1,500 now often exceeding much higher figures, creating points of contention between real estate lawyers and builders. A notable example is Ashton Meadows in Stayner, Ontario, where builders informed purchasers that they would require an additional $175,000 due to rising costs. Previously manageable development charges have surged from about $3,000 for condominiums and $5,000 for houses, up to $20,000 and more for various property types, leading to widespread confusion and frustration among buyers.
Vetting the seller: A key element
Another critical element in the assignment of new builds involves vetting the seller by requesting full disclosure, which is essential for ensuring your licence. This differs significantly from purchasing a resale home, as the typical issues usually come down to outstanding water or property tax bills that require resolution, which is easily discoverable through tax/water certificates obtained by the buyer’s lawyer.
Agents must ensure that all documents and communications from the builder to the assignor are collected and provided to the assignee, both for their review and their solicitor’s review. When requesting anything for an assignment, you must do so in writing via email so that there’s a proper paper trail. Miscommunication about financial responsibilities often arises from miscalculated Schedule B calculations or agents failing to convey accurate information, which can lead clients to mistakenly believe the cost covers the entire property without additional financial obligations.
Crucial to work collaboratively so both assignor and assignee can close
Having worked in a law firm, I’ve had exposure to the challenges faced by both legal (lawyers) and real estate (agents) professionals. It’s vital to work collaboratively to ensure that neither the assignor nor the assignee is left unable to close, as the builder’s assignment specifies that the assignor remains liable until the transaction concludes.
This continual responsibility highlights the importance of collecting all necessary information, obtaining the Tarion (warranty) certificate and the PDI (pre-delivery inspection) for deficiencies and ensuring a timely exchange of documents to prevent complications.
Intent matters significantly
During the assignment process, intent matters significantly. If the assignor originally purchased the property purely for investment while the assignee intends to owner-occupy it, the assignee may not qualify for the HST rebate.
In such cases, the assignee could face unexpected additional costs, especially if the purchase price exceeds $500,000, considerably increasing financial burdens. The intent of the assignor regarding occupancy and primary residency must be evaluated to determine its impact on the purchase price and the assignee’s eligibility for rebates.
If the assignee fails to close, the assignor might be compelled to complete the purchase or risk liability. Builders typically pursue payment from whoever they see fit, which can potentially lead to disputes and claims between the assignor and assignee.
These issues can be complex, underscoring the necessity for thorough documentation and complete disclosure to protect all parties involved. Ensuring strong collaboration and meticulous planning throughout the assignment process is the best defense against disputes.
