What is an Assignment?

The assignment of an agreement of purchase and sale is a legal transaction whereby a party to a contract transfers their rights and obligations in that agreement and associated property, to another party. It is commonly used in Ontario real estate transactions as a means of selling a property before the original purchase agreement is completed. Assignments are often pursued by buyers or investors who wish to purchase a property for a lower price than the original purchase price or who seek to benefit from a changing market or financial circumstances. In an assignment, the original purchaser (the assignor) sells their rights and benefits under the agreement to a third party (the assignee) for a negotiated price.

Benefits, Disadvantages, and Uses of an Assignment Transaction

There are several benefits to pursuing an assignment. For the assignor, it may provide an opportunity to sell the property at a profit without having to close on the purchase themselves. It may also allow them to avoid closing costs and other fees associated with the purchase. For the assignee, an assignment can offer an opportunity to purchase a property at a lower price than the original purchase price, particularly if the market has changed or the original purchaser is in financial distress. However, there are also potential drawbacks to assignments, such as uncertainty regarding the closing date, tax implications, higher than anticipated closing costs and the potential for disputes between parties.

Assignment Process

The assignment process typically involves several steps. First, the assignor must find a willing assignee who is willing to purchase their interest in the property. They may need to advertise the property and assignment (provided this is permitted by the original vendor in a pre-construction transaction) and negotiate a price with the assignee. Once an assignee is found, the parties must draft an assignment agreement that outlines the terms of the assignment, including the purchase price, closing date, obligations of each party and other relevant details. The assignment agreement must be signed by both the assignor and assignee and may need to be registered with the relevant authorities, such as the Land Registry Office. Finally, the assignee assumes the rights and benefits of the original agreement and is responsible for completing the purchase on the closing date. Throughout the assignment process, it’s important to seek legal advice and follow the requirements outlined in the original purchase agreement.

Fees and Default

Assignment agreements generally include an ‘Assignment Fee’ payable by the assignee to the assignor in exchange for the right to acquire the property. It is important to determine when this fee is payable. If any funds are to be released to the assignor prior to the completion of the original transaction, it must be specified. Otherwise, the default is that they are to be held in trust by the assignor’s solicitor, until the completion of the original agreement of purchase and sale.

If a seller defaults on the original agreement (i.e. fails to close the transactions), the assignment becomes null and void. The funds are returned to the assignee, and the assignor is not liable for any expenses or losses incurred therefrom by the assignee. The assignor can commence legal proceedings against the seller for failing to close the transaction, however, the assignee has little to no such legal remedy available, even in the face of changing market conditions.

Other Considerations

On a final note, the tax implications of assignments can be complex, and it’s important for buyers and sellers to seek legal advice before pursuing an assignment. Depending on the circumstances, both the assignor and assignee may be subject to various taxes, such as capital gains tax, HST, or land transfer tax. For example, while the resale of a residential property is naturally not subject to HST and, accordingly, there is no HST payable on the assignment fee, extra steps must be taken to ensure the same result for new-build properties; the assignment agreement must include a provision stating that part of the consideration is attributable to the reimbursement of a deposit paid by the assignee to the builder. As with the Land Transfer Tax, it is payable by the assignment after the completion date of the original transaction, on the aggregate purchase price (including the assignment fee).

Conclusion

Assignment of agreements of purchase and sale are a common tool used in Ontario real estate transactions to transfer property ownership rights and benefits. They can offer benefits such as flexibility and financial gain but also carry risks and challenges. Understanding the legal, financial, and practical implications of assignments is crucial for anyone considering pursuing this approach.