What is an Assignment?
When one party transfers their right on one property to another, it is known as an assignment. There are two types of assignment, legal and equitable. Contact us for Assignment Agreements.
If we look at a contract, one party (the assignor) can transfer their right under a contract to a third party (the assignee). The assignor does not need the other party’s consent in the contract as per the express terms and conditions of the contract.
While rights under a contract can be assigned, obligations under the contract cannot be transferred to a third party. Novation is the only method to transfer obligations.
What Are the Legal Implications of An Assignment?
As per the clauses outlined in the Law of Property Act 1925, legal or debt benefits can be assigned to another person. For a legal assignment, there are few requirements:
- Benefits under an agreement can be assigned
- Assignment should be absolute
- The rights under the debt to be assigned should be fully identifiable and whole and should not relate to any parts
- The assignor needs to sign the agreement, and the assignment should be in writing
- All parties to the assignment should receive notice of the assignment
What are Property Assignments?
Any legal sales transaction is an assignment where the assignor (original purchaser) of the property transfers their rights and obligations under the contract to the new assignee (purchaser). In simple terms, the new assignee pays a fee for purchasing the desired property.
The assignment is considered to take place from the original agreement of sale between the original purchaser and developer. The assignment happens before the property is completed.
The assignee assumes all the obligations and duties of the assignor. The original agreement of sale includes these duties and obligations such as included items, deposits, required disclosure statements, and completion date.
The assignee is granted title to the property once the property gets completed. All assignment fees are borne by the original purchaser and are charged by the developer.
The legal owner of the property is the developer till the transfer of title happens legally on completion of the property. For all assignment transactions, the developer needs to give written consent.
How can assignments from builders be done for Pre-Construction Condos?
Before project completion, many investors end up selling their builder agreement properties. The assignment is when the purchaser-investor’s interest in the builder agreement of purchase and sale is transferred to a new buyer or assignee.
Builder’s written consent is required before an assignment can take place by the purchaser-investor. Many builders can also withhold the assignment clause as per their agreement.
Whether you are moving into the property or purchasing a condo for investment, it is advisable to get the agreement reviewed by a real estate lawyer. You can understand your options and request an amendment to the agreement of purchase and sale to allow for future assignments.
Can an Assignment be done only for Pre-Construction Condos?
Any type of property can be assigned to a person, whether it is a resale or a pre-construction one. There should not be any restrictions against assignment in the original contract for the assignment to be possible.
How Can Consent from Builder be Received?
Builder’s requirements, process, and fees should be determined once the buyer confirms that they possess the right to assign the agreement as per the contract. If the agreement prohibits assignment and the builder refuses to allow them, the original buyer will have to wait to sell the property after closing.
In many circumstances, the builder’s consent to agreement assignment can be obtained even if such consent was not present in the original contract. Many builders waive the assignment prohibiting clause from the agreement once builder specified criteria and forms with fees are followed.
The sales office can help in determining if the builder can provide consent and under what conditions. Different builders have a varying set of processes on the assignment of their properties.
What are the Salient Features of the Assignment Process?
- The buyer takes over the assignment agreement and pays the adjustments to the builder at the time of closing. New and original buyers may split the adjustments if that is decided as per the agreement
- Assignment fees are typically paid by the original buyer to the builder
- In the original contract, the buyer has paid deposits to the builder. Once the contract gets assigned to the new buyer, they also take over the deposits. In most cases, the original buyer gets their deposits back once the builder gives their signed consent to the assignment of property to the new buyer.
- The original buyer gains by the difference of funds at the time of final closing.
- The closing of the transaction is dependent on the construction level of the condo unit. The buyer can occupy the unit once the occupancy closing takes place. Once the occupancy closing is done, once the builder signs the consent to an assignment, the final closing date can be set.
- The new buyer is responsible for paying the occupancy fees from the date of the property being occupied.
What Are the HST Implications of The Purchase of A Newly Built Residential Property On Assignment From A Builder?
The purchase price on the Agreement of Purchase and Sale with the Builder is already inclusive of HST and an HST New Housing Rebate. However, there are some cases where the Builder will not credit the HST New Housing Rebate on closing as a result of an Assignment, despite the eligibility of the Assignee/Purchaser for the Rebate. If you are buying on Assignment and the Builder does not credit you the HST New Housing Rebate, you will need to pay the same to the Builder as an Adjustment on final closing.
To recover your HST New Housing Rebate, you will need to apply for the HST New Housing Rebate yourself after final closing with the Builder. To be eligible for the same, you will need to have acquired the property to move into the property and that you will have actually moved into the property after closing with the Builder. Please note that if the Assignor had used the property for rental purposes after taking possession on occupancy, it will affect your eligibility for the HST New Housing Rebate and it is important to ensure the Assignor has not done so.
If you are buying on Assignment for investment purposes, you will need to obtain an HST Rental Rebate by entering into a lease to a Tenant to move into the property for at least a one-year period and apply for the HST Rental Rebate within 2 years of your final closing.
You are advised to speak to a real estate lawyer about the HST Rebate applicable to your Assignment purchase.
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