Assigning an Agreement of Purchase and Sale

By Lorne Shuman:

An Assignment of an Agreement of Purchase and Sale (“Assignment”) takes place when the original purchaser from the builder assigns or sells the contract that it signed with the builder.  This column will address many of the issues that need to be considered in an Assignment.

Most builder Agreements contain a clause which prohibit or restrict the ability of the purchaser to assign the Agreement.  As Assignments are becoming more popular, builders may permit Assignments, however, the purchaser will need to obtain the consent of the builder in order to be able to assign the Agreement.  If the builder grants consent to the Assignment, it will usually require the payment of a fee which can cost between $2500-$5000.  Once it is determined that the builder will consent to the Assignment, the builder will prepare an Assignment Agreement which will need to be signed by all of the parties.

The Assignment Agreement will name the original purchaser from the builder as the Assignor.  The individual who is purchasing from the Assignor will be called the Assignee.  In an Assignment, the Assignee will become the purchaser in the Agreement which the Assignor signed with the builder.  It is therefore important that the Assignee obtains and reviews the entire builder’s Agreement including all Amendments to the Agreement.   It is recommended that this be reviewed by a lawyer who is familiar with Assignment transactions.  In addition to the builder’s Assignment Agreement, a separate Assignment Agreement is usually made between the Assignor and the Assignee.

Assignment Agreements are not straightforward and need to be carefully prepared and reviewed.  It is always recommended that an Assignment Agreement contain two important clauses.  First, the Assignment Agreement needs to be made conditional on the review by the lawyer for the Assignee and the Assignor.  Second, the Assignment Agreement should be conditional on the builder granting consent to the Assignment.

The Assignment Agreement will need to address how and when the deposits and profit will be paid to the Assignor.  Most Assignment Agreements provide that the Assignor will receive the deposits that were paid to the builder at the time when the builder grants consent to the Assignment.  Payment of the profit, (the difference between the assignment price and the original purchase price with the builder) may not be paid by the Assignee to the Assignor until the Assignee closes its transaction with the builder.  This is because the Assignee may not be able to pay the profit until such time as it obtains its mortgage funds from its lender which will not happen until its closing with the builder.

In most cases, the Assignor will be responsible for payment of the Assignment fee to the builder.  The Assignee, however, will usually be responsible for paying any of the builder’s adjustments on closing such as utility meter installation, development charges, levies, etc.  In addition, if the Assignee does not qualify for the HST rebate, this rebate will be an additional charge that the Assignee will be responsible to pay on the final closing with the builder.

Drafted properly, Assignment Agreements can be beneficial for both the Assignor and Assignee.  By assigning the builder’s Agreement prior to closing, the Assignor can avoid closing and paying the builder’s adjustments as well as Land Transfer Tax.  The Assignee can purchase a property at an advantageous price in comparison to similar properties and may be able to view the actual property rather than buying from a set of builder’s plans.

Courtesy: Lorne Shuman, Shuman Law