An assignment sale is when a Seller sells their promise to purchase a property from a builder/developer to a new buyer, along with the rights and obligations of the Seller’s original Agreement of Purchase and Sale. This is known as the seller assigning the property to the Buyer. The original purchaser is called the Assignor and the new Buyer is called the Assignee. The Assignee is the one who will complete the final sale with the builder.
All assignments are subject to builder’s approval. Builders that allow assignments often charge the Assignor an assignment fee.
When buying a condo assignment, you are inheriting the contract from the original purchaser, as is. It’s important to have your lawyer review the contract and note that the terms the Assignor agreed to are no longer negotiable.
A possible reason for assignment is when the original purchaser has a change of heart or a change of circumstances, which could be due to marriage, divorce, having children, lifestyle change, relocation, financial hardships and sometimes financial benefits.
You can purchase an assignment property with as little as 5% down depending on what the Assignor’s terms are. When purchasing a condo assignment, you will be responsible for all the closing costs when the building is registered with the city. Closing costs include Land Transfer Tax, Development Charges, Utility Connection Fees, HST and any legal fees.
You are completely exempt from HST on a pre-construction condo, if you plan to use the property as your principal residence. Investors who will be leasing their condos will need to pay HST upfront to a maximum of $24,000. Your lawyer can file for a full HST rebate refund approximately 4 to 6 weeks later, provided you have a one year lease in place.
With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. During the first closing (the assignment closing), the original purchaser receives their deposit + any profit (or their deposit minus any loss) from the Assignee. During the second closing (between the Builder and the Assignee), the Assignee pays the remaining amount to the Builder (usually with the help of a mortgage), and pays land transfer taxes. At this point, the title of the property is transferred from the Builder to the Assignee.
There is also technically a third closing, when the Buyer takes possession of the property, but doesn’t yet own, which is known as the interim occupancy period. The interim occupancy occurs when the unit is ready to be occupied, but not ready to be registered with the city. Interim occupancy periods in Toronto is mostly a few months. During the interim occupancy period, the Buyer occupies the unit and pays the Builder an amount roughly equal to what their mortgage payment + condo fees + taxes would be. The timing of the assignment will dictate who completes the interim occupancy.
Benefits of purchasing an assignment condo
- You purchase a brand new condo today at yesterday’s prices, that no longer exists in today’s market. Sellers know they have to price their units less than what the developer would sell a similar unit in the current market. Savings can be in the tens of thousands compared to buying through the developer, and in some cases the price paid is even lower than what is available on the resale market.
- You purchase pre-construction without the wait. You don’t have the usual 3-4 year lag time, while often the occupancy is only months away.
- You inherit all new warranties: Manufacturer’s one year warranty on appliances and one, five or seven year Tarion warranty.
- You purchase a unit when the PDI (Pre-delivery inspection) has been completed, although in some cases you may get to do this.
- You pay a much smaller deposit for a much shorter time than when buying pre-construction condo from the builder, before there is even a hole in the ground.
- You may have the opportunity to see the actual unit and building, rather than buying from pictures (only applies if interim occupancy has started).
- You benefit from Platinum/VIP stages of the sales process, when prices were at their lowest and usually when many free upgrades were added on by the developer, than if you bought today from the developer directly, you would end up paying for all the extras.
- You negotiate from a position of strength, as most sellers need to get their money out now.
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