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All About Condo Assignments

— We take our content seriously. This article was written by a real person at BREL.

Some background on pre-construction condos…

To be able to really understand what an assignment is, you need to know a few things:

When a Buyer agrees to buy a condo from a builder during the pre-construction phase, they sign a pre-construction purchase contract (with a price, terms and conditions, a deposit, etc.)
When the new condo is built and ready to be moved into, there is a period of ‘interim occupancy’, where the Buyer can take possession (in other words, move into the unit). During the period of interim occupancy, the Buyer does not yet own the condo ; they simply pay the builder an amount roughly equal to what their mortgage payment + condo fees + taxes will equal. No transfer of land has yet occurred, and no mortgage has yet been given.
Once a building has passed all the city inspections and gone through all the processes to become a legal entity, condominiums are officially registered . During this registration period, condo ownership is transferred to the Buyers, mortgages come into effect and Buyers officially become owners (a.k.a. the closing ). The period between occupancy and registration (i.e. the interim occupancy period) can be anywhere from 3 months to 2 years–though registration typically happens 4-8 months after people begin to move in for the interim occupancy period.
Sometimes, Buyers of pre-construction condos change their minds and want to sell their condo either before the occupancy period or before the official close. Their life circumstances may have changed, or they may have been speculative investors who never intended on actually taking possession of the unit. Because they don’t yet own the condo, they can’t actually sell it. What they can do however, is sell their contract (their agreement with the builder to buy a unit) to another Buyer. This is what we call an assignment .

What is a condo assignment?

With an assignment, the Seller is actually selling their interest in a property (in other words, their contract with the builder). They aren’t selling the actual condo (as they don’t own it yet); they are selling their promise to purchase a property .

When you purchase an assignment, you are essentially stepping into the shoes of the original purchaser. You can’t renegotiate the price or terms of the contract, you are simply taking over the contract as it already exists.

It’s important to note that some builders won’t allow their original purchasers to assign contracts , or will only do so for a fee (we’ve seen assignment fees from $750 to $7,000). Builder approval to assign a contract is almost always necessary.

Advantages and Risks of Assignments for Buyers

When you buy an assignment, you take on all the terms and conditions that the original purchaser agreed to – so if he or she didn’t get a lawyer to approve the agreement for example, those risks are passed onto you. While you can have your lawyer review the terms they agreed to, you can’t renegotiate them.
You also take on the usual risks of buying a pre-construction condo: time delays, changes to the unit or building, extended interim occupancy periods, etc.
Depending on what stage of construction the condo is in when the contract is assigned to you, you may or may not be able to be involved in selecting finishes and upgrades .
Because it’s a new construction condo, HST may apply. If you don’t actually move into the unit, you’ll be responsible for paying tens of thousands of HST on closing.
When a condo is assigned to you, you generally have to mirror the deposit that the original purchaser has paid to date . So rather than providing the usual 5% deposit for a resale condo, you may be required to provide 15% of even 20% as a deposit. If you are a first-time buyer with a lower down payment, you may not be able to afford the deposits required for an assignment.
With an assignment, you will be eligible for the Tarion warranty program , which provides years of warranties against defects and problems with your condo, and because all the appliances will be new too, they’ll also be covered by warranties.
When the unit is officially registered and you close on the purchase, you’ll be responsible for all sorts of closing costs that don’t apply to resale units. These ‘ builder adjustments’ apply to all new construction projects and include development and education costs, HST on appliances, utility connections fees and Tarion fees. These builder closing costs can easily amount to 1-3% of the original purchase price (and there’s talk of the development fees doubling in Toronto in the near future). If you’re looking at taking over someone else’s contract via an assignment, look to see if the original purchaser capped the amount of these costs when they originally negotiated the unit. Otherwise, make sure you have lots of money put aside for closing costs.
Legal fees to purchase an assignment condo are generally higher than typical resale condo purchases. For a condo under $500K, plan on legal fees around $2,500 (vs $1,800 for a resale).
When you close on the actual purchase with the builder, you’ll need to pay land transfer tax . Because no land ever exchanged hands, the original purchaser will get to avoid paying land transfer tax.
Going through the assignment process can be a great way to purchase a condo in a building that has no remaining inventory , and often the actual purchase price (before closing costs) is lower than it will be once the building has registered and the condos are offered for sale in the resale market.

The assignment process is a tricky one, with risks, legal requirements and paperwork that doesn’t look anything like the usual agreement of purchase and sale for a condo. If you’re considering an assignment, make sure you work with a REALTOR who understands the intricacies of assignments and can guide you through the process. As always, we’d be happy to help!

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Do you have 2 bedroom unit in 50 Wellesley?

Melanie Piche says:

No sorry, we don’t have anything at 50 Wellesley right now.

Clinton says:

Can you explain how the above might affect an “assigned sale” property being rented out?

In other words- if I purchased a unit – and it’s currently under assigned sale and I wish to rent it out in an unfinished building at the moment is there anything the prospective tenant should know ahead of time?

The original agreement of purchase and sale with the builder will define what’s allowed during the occupancy period – some builders restrict rentals completely, some want to approve them, some allow rentals if the buyer uses the builder’s agent and some let people do whatever they want.

Vanessa says:

Do you have any advice on selling a condo assignment? How successful are they?

Condo assignments aren’t easy or in huge demand, but if you bought in a sold-out building that people are still interested in, it’s totally possible. That assumes you have the right to assign the unit in your contract of course…

If the Agreement of purchase and sale stated that prior to closing, the purchaser covenants and agrees not to sell, lease, transfer or assign this Agreement or unit, could I still be able to assign the unit if I pay a fee with the vendor written consent?

It sounds like you’ve agreed not to do it in your contract…you’d have to talk to the builder to see if they are are open changing the terms of your contract.

Sha Song says:

If i am buying an Assignment with a tenant in the unit in May and i plan to use it as my primary residence after final closing in September 2016. Does the few months of rent I receive from the tenant affect my qualification for the HST rebate?

You’ll want to check that with your lawyer…HST rebate laws are complicated and beyond the scope of what we can give advice about. Good luck!

mohsen says:

if i buy an assignment condo with a purchase price higher that what original buyer paid, how is the land transfer tax calculated? Builder only charges tax based on original purchase price. How should I declare the purchase price, so when i sell the condo few years down the road and if I have to pay capital gain, I won’t have to pay capital gain based on the price I actually paid?

Excellent questions! You’ll want to talk to your lawyer/accountant about that…that’s outside of the scope of the advice we can give.

Brendan Powell says:

You might find this Ministry of Finance bulletin useful:

http://www.fin.gov.on.ca/en/guides/ltt/guidenote1.html

Generally though, when it comes to land transfer tax you are paying tax on the value of what you bought, i.e. What YOU paid. For capital gain, I expect you only pay tax on whatever gain YOU had. Gain that happened on someone else’s watch is their problem!

As Melanie says though, you need an accountant and lawyer to advise on your particular situation.

sorry in my last comment, I meant ” I won’t have to pay capital gain based on the price original buyer paid”

if I buy an assignment property, do I pay the despoits to original buyer right away or do I wait until closing also do I have to get mortage pre approval right away or can I wait until later.

Pooja says:

How likely is it that a seller is able to get a higher price on an assignment than they paid? If they do, then is the buyer required to pay the entire amount at once?

Many people successfully assign properties at a premium. On the closing of the assignment, the buyer pays you whatever deposit you paid the builder + any profit you’ve agreed on. They pay the rest of the money (usually via mortgage) to the builder when the building registers.

Sandra says:

Hello, I am looking to assign my newly-built three-bedroom townhouse in Mississauga (close to Erin Mills Town Centre mall) as I am moving out of the country. My agent said that we are not allowed to advertised on MLS so how are we supposed to find potential buyers then? Word-of-mouth really restricts the buyers pool. Well, if anyone is interested please let me know by responding to this comment. Thanks.

Where and how you are allowed to advertise an assignment is set by the builder and would have formed part of the Agreement of Purchase and Sale that you signed. While it’s sometimes possible to negotiate these things while you’re making the purchase, if you signed something that restricted marketing, unfortunately you’re options are few. Hopefully you’re working with an agent who does a lot of assignments and has a ready list of buyers!

Jamey says:

Actually, I am not sure if you would answer to my question but… I at least wanted to try as I am very desperate to hear 3rd expert’s invaluable opinion. I am in the process of buying an assignment and currently waiting for a builder to approve my contract with an original purchaser. My issue here is… this approval has been pending for about 6 months now and I was wondering if it is a common case. Regardless it’s common or not, what reason do you think there is, why the builder put a hold on to approve this agreement this long? The original written contract between the original seller and the builder clearly indicates that their contract can be assigned one time before the condo registration so this whole thing was totally allowed.

It would be deeply appreciated if you could provide some thoughts on this. Thank you very much.

I’m not able to answer your question because it’s a current transaction, and of course, I don’t know the whole story. I would suggest you talk to the agent who is representing you – they should be able to shed some light on what’s going on!

Dawn Renwick says:

Hi, I am an international investor who recently purchased a condo which will complete in 2020. I am instructed that if I want to sell once we approach completion this is called an assignment. In my contract there are no restrictions as long as 90% of the units have been sold. My question is as an international investor is there any other tax implications that I should be aware of??

You should talk to your realtor and an accountant to understand the current tax situation (which of course may very well change by 2020).

Could assignement fees be negotiated with the builder?

Yes, during the initial negotiation of the purchase contract.

yusuf matadar says:

MLS allow to advertise underconstruction condo for sale if builder gives consent to do so ?

Could you “sell” your assignment to your kids? Of course without a profit on my end, at the price of the purchase I have made years ago when it was still cheap? What costs other than the legal and developer fees do I need to consider?

You can sell your assignment to your kids at whatever price you want..though check with an accountant to see if there are any tax implications for either of you. Legal fees are usually the only thing you’ll need to account for, other than builder assignment fees. Developer fees and land transfer taxes would be paid by your kids..

What percentage would you typically purchase an assignment compared to an actual closed unit?

The price totally depends on what’s happening with demand/supply in the building…closed units usually come at a premium (given additional costs incurred by the buyer) but it is building-dependent.

Thanks for the helpful article (and comments!). I bought a unit off-plan in Feb 2015 and the property has definitely increased in value since that time. The latest interim occupancy date is for June 2018 but I’m considering selling my unit on assignment – do you have any guidelines for setting the price?

I’d suggest you work with an agent who is experienced with assignments! They’ll be able to help you set the price and find a buyer. Happy to connect you with our assignment specialist – just email [email protected]

Hi When I buy an assignment, wondering if I can get a mortgage on an assignment price? Or the original price will be the price that I can get mortgage on

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What you need to know about buying an assignment condo

An assignment sale isn’t a typical real estate transaction and there are many important factors you need to know before buying an assignment condo. Regardless of the market conditions, assignment condos are usually difficult to sell, in part because they have much higher upfront requirements than regular sales. For the same reason, it presents a great opportunity for a buyer to purchase without facing overwhelming competition. Below is what you need to know about buying an assignment condo.

What is an assignment sale?

An assignment sale is a transaction in which a buyer (the “Assignor”) has purchased a property and then sells their interest in that property to another buyer (the “Assignee”) prior to the property closing. Essentially, the Assignor is not actually selling the property; they are selling their contract along with the rights and obligations of the original agreement with the Builder or original seller. While it is possible to have an assignment sale of a pre-construction house or a resale property, assignment sales in Toronto are most common in pre-construction condos.

The assignor is the original buyer of the condo unit in the pre-construction phase. In an assignment sale, the assignor is the seller.

The assignee is the buyer of the assignment condo and takes over all rights and responsibilities of the original contract.

Cons of buying an assignment condo

You, as the buyer (assignee), require a substantial amount of cash in order to buy an assignment condo. Typically in the range of 30% to 40% of the purchase price, see the cost breakdown below for details.
You may be approved for a mortgage when you make the purchase of an assignment condo, but the transaction closes much later. While you can occupy your unit prior to the final closing in the interim occupancy phase, you only get your final mortgage approval at the final closing. The interim occupancy phase may last for many months and requires you to pay the interim occupancy fee ( Tarion provides a great explanation on interim occupancy ). If your financial circumstances change in this period you could have a hard time getting a mortgage.
Usually, there is only one assignment sale permitted. So you cannot resell the condo until the final closing and registration of the building.

Pros of buying an assignment condo

You can buy a brand-new condo without having to wait many years for it to complete.
There is usually a good amount of inventory to choose from and you can get a better price than comparable resale properties. This is especially important if the market is super hot, as there is less competition.
You don’t have to worry about a project being canceled, leaving you out to dry. Once assignments are allowed by the builder, the building is usually already well underway.

Looking to buy an assignment condo?

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Costs Breakdown

Payment terms vary from one agreement to the next but the chart below will give you some insight.

Assignments and renting

If you are buying an assignment condo in order to rent it out be sure to mention that to your lawyer. The builder’s contract may have very specific conditions concerning when and if you can rent the unit out during the interim occupancy period. Also, the builder may not qualify for a portion of the HST rebate if you’re an investor. However, subject to certain limitations the assignee may qualify for an HST rebate after closing. To get exact details on this I would strongly recommend speaking to a lawyer and an accountant before you start searching for assignment condos.

All assignment sales should be conditional upon your lawyer reviewing the entire assignment agreement. Part of that will be all of the contents and disclosures of the original agreement of purchase and sale between the Assignor and the builder.

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Buying Condos on Assignment — A Quick Guide

Buying condos on assignment is becoming the norm in the real estate business. Investors use this strategy to purchase a condo cheaply and sell before closing to maximize profit. Understanding what a condo assignment is can be difficult, especially for newbies in the niche. Our team will discuss condo assignments and what you need to know before diving in to your next investment.

What Is a Condo on Assignment Sale?

A condo on assignment sale is a written document issued to the purchaser of a pre-construction condo unit from the builder or an investor intending to sell. This agreement indicates that since the building hasn’t been officially registered, no one can take possession of the condo unit. However, you are allowed to sell the agreement to an interested buyer before the building is fully registered.

You will only get full ownership of the building after the final closing date – the period when the property title will be transferred to you. Once the property has become registered, you can sell the property and the title. It’s after the closing date that you will begin your mortgage payment.

Remember, the condo unit isn’t officially yours, even after making your down payment. You will only get a condo assignment sale as proof of your down payment and not the property’s title until after the closing date.

Why Purchase a Condo on Assignment?

There are reasons why buying condos on assignment is a familiar strategy investors and realtors use these days. If you already bought a pre-construction condo, you can maximize profit before closing and registration by selling the contract to another buyer. This is called “flipping.”

If you also have to relocate or out of cash, you can sell the contract to an interested buyer and get your money. Here, the agreement can protect you from accruing further costs.

Another reason to purchase a condo on assignment is that you’ll be buying at a price less than the market value when it’s completed.

Important Factors to Remember

When buying a condo on assignment, you need to keep the following factors in mind.

You will be liable to pay taxes, such as Land Transfer Tax and other legal fees after the final closing date. Our experts recommend that you employ the services of a tax advisor for proper guidance.

Down Payment

Buying a condo on assignment sale demands that the builder collects a down payment from you. The deposit structure varies from builder to builder and the current phase of the building construction, but the typical range is between 15% – 30% of the total price of the building.

The builder must approve all the transactions regarding assignment sales. Some builders may not approve until the date of assignment sale is near the final closing date to avoid any confusion on whose name the property will be registered to.

You are mandated to provide Proof of Sufficient Funds to show that you can pay for the purchase before the builder can issue the contract. The remaining amount after the initial down payment is paid in the form of a mortgage.

The builder automatically assumes that you are using your condo as your primary residence after registration. Therefore, you become obligated to assign the HST Rebate entitlement to the builder.

Real Estate Broker

You need the help of a professional and seasoned real estate broker to help you with the transaction and ensure that it goes smoothly. This is because the paperwork involved is relatively complicated, and many agents or real estate brokers may not fully understand how condo on assignment sale works.

Closing an Assignment Sale

When buying a condo on assignment sale, you will be responsible for closing costs once the builder registers the building. These costs include Land Transfer Tax, Utility Connection Fees, Development Charges, etc. [1] However, you are exempted from HST if you plan on using your condo as your primary residence.

When purchasing a condo on assignment sale, you need to take note of the following:

Assignment closing date (when the transaction is completed)
Occupancy closing date (the first date when the builder hands over the keys to the purchaser)
Final closing date (when the title of the property is transferred to you)

How do you buy an assignment for a condo?

To buy an assignment for a condo, you must be ready to purchase one of the pre-construction condo units from the builder. Afterward, you can request an assignment from the builder, showing that you own one of the units.

How does a condo assignment work?

A condo assignment transfers partial ownership of the building from the builder to the buyer. When buyers decide to purchase a pre-construction condo unit, they agree with the builder, signifying partial ownership.

When buying condos on assignment, it’s vital that you go through all these factors, as explained by our real estate experts, to avoid any complications, especially during the closing dates. An error could jeopardize your chances of buying a pre-construction condo, so take your time while going through the transaction.