The condo industry is booming, with that has come a spike in the preconstruction industry, and an increase in assignment sales. If you’ve been looking around at the condo market recently there is a very good chance that you’ve come across the term ‘assignment clause’ or ‘assignment sale’. 

Whether you’re considering opting for an assignment sale, or you’re just looking to get a better handle on what it actually is, we’ve got you covered.  

Below we will break down what an ‘assignment’ is, why someone may want to sell or purchase through an assignment sale, HST changes on assignment sales, and if this is the right option for you. 

What is an assignment sale?

First things first, what exactly is an assignment clause or sale? 

The basics of an assignment sale is the transfer of contractual rights from one party to another. The original buyer of the property (the assignor) gives away the rights and obligations of the property to a new buyer (the assignee). In this transaction the assignee agrees to meet all of the assignor’s commitments and obligations under the original contract of purchase. The assignee is not buying the property outright, but rather buying the “rights” to obtain the condo from a third party, the developer. This all takes place before the property closes. 

While an assignment sale is possible for all types of properties, you will mostly see this type of transaction with pre-construction condominiums. 

This clause will be indicated in the original sale of purchase. Each build is different, making each assignment unique. Unlike traditional real estate transactions, in assignment sales the builder plays a large role and can actually deny or set varying restrictions on selling assignment. 

Why would someone want to do an assignment sale?

There are several reasons why someone may choose to do an assignment sale, with the most popular two being lifestyle change and investment opportunities. 

Lifestyle Change

• Preconstruction condos can be purchased up to several years before the build is even complete. The more time between purchase and occupancy, the greater the potential for various circumstances to arise and different needs to be met. It is not uncommon to see assignment sales due to the original owner’s lifestyle and needs changing. 

Investment Opportunity

• You may also hear about people who “flip” condos. Getting a condo from an assignment sale is one way people do this. 

Why would I want to buy an assignment sale? 

Just like there are several reasons why someone might sell on assignment, there are also several reasons why one might opt for an assignment sale over a typical transaction. 

Purchase condo at lower cost 

• There is typically less competition for these types of properties which translates into a better deal for the buyer. 

Buyers Advantage

• If someone is looking to get out of their contract quickly, it leaves the buyer at an advantage to have more choice in the build while it is still being completed.

Equity

• If you purchase a pre-construction condo on assignment there is a larger opportunity for you to build equity on the condo. Any equity that was and will continue to accumulate on the build will now inherently be transferred over. 

Things to Consider if buying on Assignment

While an assignment sale can be mutually beneficial to both the seller and the buyer, just like any sale transaction, there are several things to consider when buying on assignment.

Non-negotiable contract

• When you purchase the contract and rights to the property, you are purchasing as is. You are inheriting a contract and the original terms must be adhered to. As the new buyer you would essentially just be stepping into the shoes of the original owner. 

Closing Costs

• Once complete and the building is registered, you will be responsible for all closing costs. This includes, but is not limited to, development charges, Land transfer Tax, connection fees, HST, and legal fees.

Conditional Period

• Once both parties have agreed upon the sale it then must be submitted to the developer who has the final approval. Making this a weighty and potentially longer period than a regular transaction. 

HST Rebate changes in Ontario

Ontario recently announced in its 2022 budget how HST will be applied to assignment sales on preconstruction condos, homes, and townhouses moving forward. 

Previously to this announcement assignment sales in Ontario only required the new buyer (assignee) to pay HST on the profits made on the transaction. This new rebate announcement means that any assignment sale closing after May 7^th, 2022, is subject to the new buyer (assignee) paying the 13% HST on the entire purchase of the property. 

If considering an assignment sale, it is important to take this new HST change into account.

While not your typical sale or transaction, assignment sales are definitely an option to consider. Interested in learning more about assignment sales? Curious if this is the right move for you? Connect with an agent to find the best option for you!