The dangers of the resale assignment

Interestingly enough last week the Real Estate Associate in my office had a difficult situation arise relating to what purported to be, an assignment of a resale condominium. I want to talk about this because there is a minefield of possible outcomes that could have gone wrong.

Let’s start at the beginning. What is an assignment in a real estate transaction? What are you buying? When you buy an assignment deal you are NOT buying the property; in reality you are buying the Agreement of Purchase and Sale (the “Offer”). Oh, what does that mean, you ask? It means a whole bunch of things.

First of all, unlike new homes where the builder generally has an assignment clause built into the Offer, generally the seller in a resale assignment may have no idea this has happened. There is a reason. Here you are, the seller, when you suddenly realize you did not get the full price for your house, someone bought it and flipped it for a higher price and is making money that you believe should be yours. What happened to your agent, why is this? The seller will be very unhappy and will express this to their lawyer. Now everything may go fine but the seller may make it a very difficult transaction for the innocent purchaser and if there is anything on title, or not perfect, it may all go sideways.

In order to avoid this situation I recommend that every seller insist that their agent put in a clause either preventing assignments or allowing an assignment, with a cost built in and requiring the seller’s consent — model it after the new-home market in every regular Agreement of Purchase and Sale. This will also protect the assignment purchaser and seller, one way or the other.

Another thing to remember for the purchaser of an assignment: HST. There is no HST payable on a resale home purchase, BUT, there is HST payable on the purchase of the offer. This is something that needs to be dealt with properly in every assignment agreement by the agent. Who pays the HST? Also ensure the numbers reflect properly what you are paying for the assignment only, or Canada Revenue Agency may decide HST is payable on the entire purchase price.

Every seller of an offer also needs to be prepared to close the transaction. Huh? You thought you sold the offer, and you’re out of there waiting for your money. Nope, if your assignment purchaser fails to close for any reason, you are still on the hook to the original seller and liable to lose your deposit and get sued if it does not close.

Even if the original seller refuses to cooperate, the assignment seller can always close and then resell to the assignment purchaser. This will result in two land transfer tax payments, but such is life.

Here is another fun issue for the assignment seller. How do you guarantee that you get any profit on the sale of the offer? This is a delicate matter as, unless security was built into the offer, there is no way to guarantee you get paid. You have a right to sue; maybe a right to tie up the property, but all of this costs money for lawyers and takes time. Thankfully, there are still many reputable lawyers that advise their clients to live up to their obligations.

So what is the moral of the story? If you do a resale assignment, have a lawyer that understands these things review the offer and ensure the clauses necessary to protect you, whether buying or selling, are there.

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