New Condo Assignment Sales in Ontario. Some Thoughts
In this memo, I wanted to chat about Assignments and some common pitfalls.
The most common assignments, that I see, are ones around New Condos.
A person had signed an agreement of Purchase and sale with a Builder, a few years back, and is now looking to assign the contract to someone else and hoping to make a profit.
However, did you know that unless otherwise documented in the contract, and generally speaking, even residential sales in Ontario can be assigned without the consent of the original seller? One exception being a contract with a Seller Take back Mortgage, — as you can’t assign a liability.
If you’re the listing realtor in this scenario —Thats not a fun conversation to have with your client. Hey, guess what…so we sold your home at such a low price, that the new buyer is flipping it before closing to make a sweet profit too. Just spreading the love.
To help reduce the risk, Keep closings within the 30 -60-day window. Long drawn out close dates are absolutely riskier. As a seller, you can also insist on a no assignment clause placed into Schedule A or Schedule B.
However I digress, let’s get back into new condo assignments
For Sellers, New Condo sale through Assignment.
- Apply and receive written permission from the Builder to assign or even advertise your unit. Some builder agreements state that the property cannot even be advertised for sale without permission. This could result in you losing the condo and forfeit all deposits
- Ensure that the assignment agreement is absolutely reviewed by a lawyer. OREA form 150 has math that needs to be done right, and you may want to add clauses depending on when all the monies get paid to respective parties.
- Everything is negotiable, but as a seller, you’d ideally want to receive your original deposits once the Builder provides written consent of the assigned agreement.
- Most new condo agreements contain a schedule of additional charges. Levies and development charges. It’s negotiable, but you’d want this assigned to the new owner.
- It’s so important to receive proper tax consultation from your accountant. A couple of items include,
- Do you charge to the new buyer HST on the profit you’re making on the assignment
- Do you charge HST on the deposit being returned to the builder
Be careful if your agreement says HST included in the price. Then it’s all on you.
Tax. Profit on the sale for the seller will be considered income tax or capital gains tax by the CRA. Proper tax advice is required. As you never held title this may be considered an income.
For Buyers, buying a Condo through an Assignment
- New Condo agreements typically require the buyer to take possession and move in. The builder then applies for the new home housing rebate. This rebate has already been included in the sales price. As the assignee (Buyer) you’re required to take over this obligation. In other words, if you’re not planning to move in, the CRA could come back to you for this rebate. Through a separate application, you may qualify for the HST rebate if you rent the unit for at least one year. Professional advice from an accountant is import
- Most new condo agreements contain a schedule of additional charges. Levies and development charges. It’s negotiable. However, if these are not capped in the original agreement of purchase and sale, you’d want a clause in the assignment agreement to reduce your liability.
- A Mortgage. Be aware that on an assignment where the seller is making a profit, the bank is looking at comparables from the original purchase price. Hence you may need to cover the difference
Be diligent and prudent on both sides of the equation. Have an awesome Lawyer, Accountant, and Realtor on your success team.