The original purchaser (assignor) buys a condo from the builder in 2018 for $400,000 with a total down payment of 25% ($100,000), completion is scheduled for 2023. In 2021, the original purchaser or assignor resells or assigns the property to another party (assignee) for a sale price of $500,000. To purchase the assignment, the new buyer or assignee must pay the following in order to assume the assignment contract:
|Total deposit by original purchaser (assignor) on signing of contract with builder||$100,000|
|Plus difference in assignment price from original price ($500,000 minus $400,000)||$100,000|
|Total cost by the new buyer (assignee) to purchase the assignment||$200,000*|
When the property is ready for occupancy in 2023, the new buyer (assignee) shall complete the sale with the builder under the same terms and conditions as per the original purchase and sale agreement.
PLEASE NOTE: In the event the new buyer (assignee) does not complete the said transaction, the builder may go after the original purchaser (assignor). And in such situation, the original purchaser (assignor) should seek legal advice.
In 2023, when the property is complete and ready for occupancy, the following breakdown occurs:
|Original sale price||$400,000|
|Original deposit paid by assignor and transferred to assignee||$100,000|
|Funds required by assignee to complete sale in 2023 (payable to builder)||$300,000**|
Therefore, the total cost for the property is $500,000 with $200,000* due immediately (payable to original purchaser or assignor), and $300,000** (payable to the builder and can be provided by your mortgage lending institution) due at completion. Assignment contracts can either complete within one (1) month of writing a contract or when the builder finishes the building and the suite is ready for occupancy – this is negotiable and can be discussed with the listing (assignor) agent.
Please note that the above information is simply a guideline. Any buyer who enters into an assignment contract is highly recommended to first seek independent legal advice. Further, a buyer should be qualified by a mortgage broker before writing an assignment contract. These contracts are firm and binding and there can be serious consequences and losses to the new buyer (assignee) if he/she cannot fulfill his/her obligation.
Important things to consider before buying an assignment:
- Consider whether an assignment is permitted under the original purchase and sale agreement. If yes, obtain a written consent from the builder. Some builders do not permit assignments while others may issue a written consent and a substantial assignment fee.
- Review the builder’s disclosure statement and thoroughly review all other documents related to the sale such as the Tarion Warranty Certificate. Your real estate lawyer can help you with this task. This is another reason why you need to seek legal advice prior to finalizing (usually within ten (10) business days) an assignment contract.
- Consider all your options, such as whether the deposit will be paid to the assignor (original purchaser) upon signing the agreement or held in-trust until some later date. Generally, it is preferable from the assignee’s (new buyer) perspective if the funds are released to the assignor only after the suite is built and title is being transferred.
- Confirm in the assignment agreement how the assignor (original purchaser) will meet all the requirements for a valid assignment, and set out what will happen if there is any breach of the assignment or the pre-sale contract.