Many would-be buyers of pre-construction properties are unable to get their hands on a new development due to factors such as financial constraints or missing the time period in which the sale of such a property comes available to public. More and more, purchasers are entering into an assignment of agreement of purchase and sale (“APS”) which allows you to purchase a pre-construction property prior to its final closing.
What is an Assignment?
An assignment APS is a contract that is drawn up which has two parties to it. The first party, known as the assignee, is the party which aims to purchase a pre-construction property from the assignor. The assignor is the seller who has already executed an APS with the builder of the pre-construction development but now wishes to sell their interest to the assignee prior to the final closing of the property.
Assignments can be highly lucrative. The sale price of an assignment will usually be above and beyond the price originally paid by the assignor to the builder. These type of assignments are usually undertaken by investors who seek to capitalize on the appreciation of the pre-construction property between the time they sign an APS with the builder to the time they sign an assignment APS with an assignee.
In rarer circumstances, some assignors may wish to assign their APS at the same price they originally paid the builder. This can happen for a multitude or reasons but one of the main reasons why this is done is because the assignor no longer finds the pre-construction property suitable to their needs (financially or otherwise).
The Importance of Sound Legal Advice
Receiving sound legal advice for an assignment APS is crucial. Not only do you want a lawyer to review the contract itself, but you may require tax advice. A prudent lawyer will be on alert for any potential HST issues on an assignment and advise their client to confer with their accountant or the Canada Revenue Agency, as necessary, to determine any tax implications for the assignor or assignee.
Further, a lawyer can assist in obtaining the consent of the builder to the assignment itself. The lawyers for the assignee, assignor and builder will work together to have all the parties execute what is commonly known as an assignment and consent agreement. In the same way a sensible buyer of a pre-construction property will seek to attain legal advice on their APS with the builder, an assignee should also request that their lawyer explain to them their responsibilities under the APS (such as agreeing to observe and perform all of the obligations that the assignor agreed to with the builder as per the original APS).
A lawyer can also explain the amounts that will need to be remitted by the assignee to the assignor. As a condition of the assignment, an assignor will want all of their deposits they have already paid to the builder from the assignee. In addition, the assignor will also want the difference between the original APS price the assignor agreed to with the builder and the assignment price with the assignee (for example, if the assignor purchased a pre-construction property for $100,000.00 and agrees to assign the APS for $150,000.00, the assignee will have to come up with $50,000.00, payable to the assignor, along with the deposits already paid by the assignor as previously mentioned).