Life can be a roller-coaster, and things can change very quickly. Imagine you have just bought a home, but your financial circumstances suddenly change! Now you find yourself in an impossible situation, where you cannot afford your brand new home, and you haven’t even moved in yet!
This is where knowing about real estate assignments could be a life-saver!
As per the Real Estate Council of Ontario, a real estate assignment is a transaction where the assignor (the buyer) of a given property allows an assignee (another buyer) to take over his rights and obligations under the Agreement of Purchase and Sale, provided that the assignor has not yet taken possession of said property. The assignee will then complete the deal and take possession instead.
For example, Lisa decided to buy property X, but before the deal has closed, she has now changed her mind and no longer wants to buy it. Backing out of the deal at this point will ensure that Lisa faces monetary penalties and fees. Instead, Lisa can make use of an assignment and Hani could take over as the new buyer, and he will be the one to take possession of the property and completing the deal. The contract will be passed on from Lisa to Hani, while Lisa has not “backed out” of the deal with the seller and will not pay any penalties.
Such assignments are more common in pre-built homes and condos, though they could be used on any type of trade, as per RECO.
Assignments are legal, as long as they are done properly. They can be a very useful tool in unexpected situations such as personal emergencies or sudden financial changes.
Anyone participating in an assignment is advised to speak with a tax specialist. An assignor (original buyer) may pay tax on any profit incurred from the assignment. Land transfer taxes are paid by the assignee (new buyer) since they are due upon closing. You can read more about the land transfer tax here.
To stay protected, you must read carefully any contract that you sign and educate yourself about the meaning of the document and the impact it would have on you. Remember that real estate contracts are legally-binding. Real estate professionals are great sources of information who are able to explain the clauses in a contract to you.
June 30, 2016
Team Riaz Ghani