Real Estate

Legal review critical in real-estate assignments

By AdvocateDaily.com Staff

Those thinking about purchasing from a third party that's flipping their new construction condo or home prior to taking possession should have a lawyer review their assignment agreements and the original purchase agreements to ensure they’re within their legal rights to do so, says Toronto real estate lawyer Sarita Samaroo-Tsaktsiris.

People often assume they have an automatic right to assign their property, but it’s not set in stone, she tells AdvocateDaily.com.

An assignment occurs when the original buyer of a property, the assignor, allows another buyer, the assignee, to take over the rights and obligations of the agreement of purchase and sale, before the original buyer closes on the property, Samaroo-Tsaktsiris explains.

“Some developers allow buyers to assign their properties, but not all, and if they do there are usually conditions the assignor has to fulfill as part of that agreement,” Samaroo-Tsaktsiris explains. “It’s prudent to have purchase agreements reviewed by a solicitor before the deal is firm, and if possible, the offer should be conditional on a review, especially in the case of a new construction freehold property where a review is not a legislative requirement."

The Real Estate Council of Ontario cites an example of an assignment where the buyer purchased a condo that won’t be ready for two years, but whose financial situation has since changed. In that case, the owner may be able to assign the property to a new third party if it is noted in the agreement of purchase and sale, but it’s not as simple as updating the agreement by way of an amendment from one person to another, says Samaroo-Tsaktsiris, principal of SST Law Professional Corporation.

While many builders' purchase agreements grant the right to assign properties in theory, owners often need to take additional steps such as obtaining formal consent from the builder in writing by way of a consent to an assignment prior to either the occupancy date (in the case of a condominium) or final closing date (in the case of a freehold property) with the combined signatures of the assignor, the assignee and the builder, she says.
“Typically, builders have strict guidelines around assigning properties. In most cases, they can't be listed on the MLS, for example, but the assignor can find prospective buyers through realtors or personal contacts. Usually, this prohibition is placed on assignors because the builder's lenders insist that the majority of the units must be owner-occupied. If too many units are assigned, it can ultimately affect the builder's ability to receive financing for their project," she says.

For buyers who forge ahead without seeking advice from a real estate solicitor, it can also be an expensive mistake, Samaroo-Tsaktsiris adds.

“The builder normally has a clause in the agreement of purchase and sale where the agreement can be terminated and deposits potentially forfeited in circumstances where prior consent to assign was not obtained and in situations involving lack of consent to list it on MLS. If the builder allows the agreement to be reinstated, often a revival fee must be paid by the original purchaser to the builder, which can often cost the original purchaser in the thousands of dollars,” she explains.

Another misconception around these types of sales is that assignors of new construction condos or homes assume that once they assign the property to another buyer, they are free and clear of all obligations under the original purchase agreement, but Samaroo-Tsaktsiris says the original purchaser is still responsible to ensure the transaction is completed between the builder and the assignee.

"However, once the assignment transaction is in fact completed, the assignor has the benefit of retaining any profit derived from the assignment sale price, which is the difference between the assignment sale price less the original sale price provided by the builder to the original purchaser," she says.

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