assignment clause real estate ontario

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10 Essential Things to Know About Real Estate Assignment Sales (for Sellers)

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

What’s an assignment?

An assignment is when a Seller sells their interest in a property before they take possession – in other words, they sell the contract they have with the Builder to a new purchaser. When a Seller assigns a property, they aren’t actually selling the property (because they don’t own it yet) – they are selling their promise to purchase it, along with the rights and obligations of their Agreement of Purchase and Sale contract.  The Buyer of an assignment is essentially stepping into the shoes of the original purchaser.

The original purchaser is considered to be the Assignor; the new Buyer is the Assignee. The Assignee is the one who will complete the final sale with the Builder.

Do assignments only happen with pre-construction condos?

It’s possible to assign any type of property, pre-construction or resale, provided there aren’t restrictions against assignment in the original contract. An assignment allows a Buyer of a any kind of home to sell their interest in that property before they take possession of it.

Why would someone want to assign a condo?

Often with pre-construction sales, there’s a long time lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

Another common reason why people want to assign a contract is financial. Sometimes, the original purchaser doesn’t have the funds or can’t get the financing to complete the sale, and it’s cheaper to assign the contract to a new purchaser, than it is to renege on the sale.

Lastly, assignment sales are also common with speculative investors who buy pre-construction properties with no intention of closing on them. In these cases, the investors are banking on quick price appreciation and are eager to lock in a profit now, vs. waiting for the original closing date.

What can be negotiated in an assignment sale?

Because the Assignee is taking over the original purchaser’s contract, they can’t renegotiate the price or terms of the contract with the Builder – they are simply taking over the contract as it already exists, and as you negotiated it.

In most cases, the Assignee will mirror the deposit that you made to the Builder…so if you made a 20% deposit, you can expect the new purchaser to do the same.

Most Sellers of assignments are looking to make a profit, and part of an assignment sale negotiation is agreeing on price. Your real estate agent can guide you on price, which will determine your profit (or loss).

Builder Approval and Fees

Remember that huge legal document you signed when you made an offer to buy a pre-construction condo? It’s time to take it out and actually read it.

Your Agreement of Purchase & Sale stipulated your rights to assign the contract. While most builders allow assignments, there is usually an assignment fee that must be paid to the Builder (we’ve seen everything from $750 to $7,000).

There may be additional requirements as well, the most common being that the Builder has to approve the assignment.

Marketing Restrictions

Most pre-construction Agreements of Purchase & Sale from Toronto Builders do not allow the marketing of an assignment…so while the Builder may give you the right to assign your contract, they restrict you from posting it to the MLS or advertising it online. This makes selling an assignment extremely difficult…if people don’t know it’s available for sale, how they can possibly buy it?

While it may be very tempting to flout the no-marketing rule, BE VERY CAREFUL. Buyers guilty of marketing an assignment against the rules can be considered to have breached the Agreement, and the Builder can cancel your contract and keep your deposit.

We don’t recommend advertising an assignment for sale if it’s against the rules in your contract.

So how the heck can I find a Buyer?

There are REALTORS who specialize in assignment sales and have a database of potential Buyers and investors looking for assignments. If you want to be connected with an agent who knows the ins and outs of assignment sales, get in touch…we know some of the best assignment agents in Toronto.

What are the tax implications of real estate assignment?

Always get tax advice from a certified accountant, not from the internet (lol).

But in general, any profit made from an assignment is taxable (and any loss can be written off). The new Buyer or Assignee will be responsible for paying land transfer taxes and any HST that might be due.

How much does it cost to assign a pre-construction condo?

In addition to the Builder assignment fees, you will likely have to pay a real estate commission (unless you find the Buyer yourself) and legal fees. Because assignments are more complicated, you can expect to pay higher legal fees than you would for a resale property.

How does the closing of an assignment work?

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. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. On 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. Title of the property transfers from the Builder to the Assignee at this point.

I suppose it could be said that there is a third closing too, when the Buyer takes possession of the property but doesn’t yet own it…this 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 range from a few months to a few years. 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.

Assignments vs. Resale: Which is Better?

We often get calls from people who are debating whether they should assign a condo they bought, or wait for the building to register and then sell it as a typical resale condo.

Pros of Assigning vs. Waiting

• Get your deposit back and lock in your profit sooner
• Avoid paying land transfer taxes
• Avoid paying HST
• Maximize your return if prices are declining and you expect them to continue to decline
• Lifestyle – sometimes it just makes sense to move on

Cons of Assigning vs Waiting

• The pool of Buyers for assignment sales is much smaller than the pool of Buyers for resale properties, which could result in the sale taking a long time, getting a lower price than you would if you waited, or both.
• Marketing restrictions are annoying and reduce the chances of finding a Buyer
• Price – What is market value? If the condo building hasn’t registered and there haven’t been any resales yet, it can be difficult to determine how much the property is now worth. Assignment sales tend to sell for less than resale.
• Assignment sales can be complicated, so you want to make sure that you’re working with an agent who is experienced with assignment sales, and a good lawyer.

Still thinking of assignment your condo or house ? Get in touch and we’ll connect you with someone who specializes in assignment sales and can take you through the process.

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Raj Singh says:

What can be things to look for, especially determining market value for an assigned condo? I’m the assignee.

Sydonia Moton says:

Y would u need a lawyer when u buy a assignment property

Gideon Gyohannes says:

Good clear information!

Who pays the assignment fee to the developer? Assignor or Assignee?

Thanks Gideon 416 4591919

Melanie Piche says:

It’s almost always the Seller (though I suppose could be a point of negotiation).

Fiona Rourke says:

If there are 2 names on the agreement and 1 wants to leave and the other wants to remain… does the removing of 1 purchaser constitute an assignment

Brendan Powell says:

An assignment is one way to add or remove people from a contract, but not the only way…and not the simplest. Speak to your lawyer for advice on what makes the most sense for your specific situation. For a straightforward resale purchase you could probably just do an amendment signed by all parties. If it’s a preconstruction purchase with various deposits paid, etc it could be more complicated.

Katerina says:

Depends on the Developer. Some of them remove names via assignments only.

Haroon says:

Is there any difference in transaction process If assigner or seller of a pre constructio condo is a non resident ? Is seller required to get a clearance certificate from cRA to complete the transaction ?

Nathalie says:

Hello , i would like to know the exact steps for reassignment property please.

Amazing info. Thanks team. I may just touch base with you when my property in Stoney Creek is completed in. 2020. I may need to reassign it to someone Thanks

Victoria Bachlowa says:

If an assignor renegs on the deal and refuses to close because they figured out they could get more money and the assignment was already approved by the builder and all conditions fulfilled what can the Assignee do. I have $33,000 dollars in trust in the real estate’s trust fund. They sent me a mutual release which I have not signed. The interim occupancy is Feb. 1 and the closing is schedule for Mar. 1, 2019. I have financing in place, was ready to move in Feb. 1 and I have no where to live.

Definitely talk to your lawyer right away. They’ll want to look at your agreement of purchase and sale and will be able to advise you.

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. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. Can I assume that these closing happen at the same time? I’m not sure how and when I would be paid as the Assignor.

What happens to the deposits or any profits already paid if the developer cancels the project after an assignment?

Hi, Did you get answer to this? I did an assignment sale last year and now the builder is not completing apparently and they are asking for their money back. Can they do that? After legal transactions, the lawyer simply said “the deal didn’t go through”. Apparently builder and the person who assumed the assignment agreed on taking out the deal. What do I have to pay back after it was done a year ago

This is definitely a question for your lawyer – as realtors we are not involved in that part of the transaction. I would expect that just as the builder would have to refund your deposits, you would likely need to do the same…but talk to your lawyer. As to whether the builder can cancel a project, yes they always reserve that right (but the details of how and under what circumstances would be in your original purchase agreement). It’s one of the annoying risks in buying preconstruction!

I completed the sale of my assignment in Dec 2015 however the CRA says I should be reporting the capital income in 2016 when the assignee closed his deal with the developer in July 2016. That makes no sense to me since I got all my money in Dec 2015. Can you supply any clarification on that CRA policy please?

You’d have to talk to the CRA or an accountant – we’re real estate agents,so we can’t give tax advice.

Hassan says:

Hello, You said that there are two closings. The first one between the assignor and the assignee and the second one between the builder and the new buyer (assignee). My question is that in the first closing does the assignee have to pay the assignor the deposit they have paid and any profit in cash or will the bank add this to the assignee’s mortgage?

The person doing the assigning usually gets their money at the first closing.

Kathy says:

What is the typical real estate free to assign your contract with the builder ?

Hi Kathy While we do few assignments (as they are rarely successful, and builders do not make it easy), in past we have charged more or less the same as we do for a typical resale listing. While there are elements to assignments that should be easier than a resale (eg staging), many other aspects of assignments are much MORE time-consuming, and the risk much higher since attempts to find a buyer for assignments are often unsuccessful. It’s also important to note that due to the extra complication, lawyer’s fees to assign are typically higher than resale as well–although more $ for the purchase side vs the sale side.

Mitul Patel says:

If assignee has paid small amount of deposit plus the original 25% deposit that the assignor has paid to the builder and gets the Keys to the unit since interim possession has been completed, when the condo registration is done and assignee is getting mortgage from the Bank or Pays the remaining balance to the Builder using his savings and decides not to pay the Balance of the Profit amount to Assignor, what are the possibilities in this kind of scenario?

You’d need to talk to a lawyer to find out the options.

David says:

How much exactly do brokers get paid at sale of Assignment? i.e. Would the broker’s fee be a % of your assignment selling price or your home’s selling price? I’m really looking for a clear answer.

I am using this website’s calculator associated with selling your home in Ontario. But there is no information on selling assignments. https://wowa.ca/calculators/commission-calculator-ontario

Realtors set their own commission, so there is no set fee- that website is likely the commission that that agent offers. We often see commissions of 4-5% for assignments. The fee is a % of the price of the assignment – for example, you originally bought for $500K; you’re now assigning for $600K – commission would be payable on the $600K.

Candace says:

Question: if i bought a pre construction condo, can i sell it as soon as it closes or do i have to live in it for 1 year after closing in order to avoid capital gains taxes?

Or does the 1 year start as soon as you move in?

I would suggest you talk to your accountant re: HST credit implications and capital gains, but if you sell it for more than you paid for it, capital gains usually apply.

You mention avoid paying HST when you assign your property. What is the HST based on? It’s not a commercial property that you would pay HST. Explain. Thanks.

HST and assignments are complex and this question is best answered specific to your situation by your accountant and real estate lawyer. In some cases HST is applicable on assignment profits – more details can be found on the CRA website here:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/gi-120/assignment-a-purchase-sale-agreement-a-new-house-condominium-unit.html

If you are a podcast listener, the true condos podcast is also a great resource.

https://truecondos.com/cra-cracking-down-on-assignments/

heres one for your comment, purchase pre construction from builder beginning of 2021, to be finished end of 2021, (semi detached) here we are end of 2022, both units are now ready. Had one assigned but because builder didnt accept within certain time frame(they also had a 90 day clause wherein we couldnt assign prior to 90 less firm closing date (WHICH MOVED 4 TIMES). Anyrate now we have a new assinor but the builder says we are in default from the first one and wants 50k to do the assignment (the agreement lists the possibility of assigning for 12k) Also this deal would include us loosing our whole deposit and paying the 12k(plus fees) would be in addition too the 130k we are already loosing. The second property we are trying to close but interest rates are riducous, together with closing costs(currently mortgage company is asking that my wife be added to that one, afraid to even ask this builder. Any advice on how to deal with this asshole greedy builder? We are simply asking for assignment as per contract and a small extension for the new buyer(week or two) Appreciate any advice. Thank you

Dealing with builders/developers can be extremely painful, much worse than resale transactions in our experience. Their contracts are written to protect THEM. Unfortunately all I can say is follow the advice of your lawyer.

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Assignments of Agreement of Purchase and Sale – An Overview

What is an assignment.

The assignment of an agreement of purchase and sale is a legal transaction whereby a party to a contract transfers their rights and obligations in that agreement and associated property, to another party. It is commonly used in Ontario real estate transactions as a means of selling a property before the original purchase agreement is completed. Assignments are often pursued by buyers or investors who wish to purchase a property for a lower price than the original purchase price or who seek to benefit from a changing market or financial circumstances. In an assignment, the original purchaser (the assignor) sells their rights and benefits under the agreement to a third party (the assignee) for a negotiated price.

Benefits, Disadvantages, and Uses of an Assignment Transaction

There are several benefits to pursuing an assignment. For the assignor, it may provide an opportunity to sell the property at a profit without having to close on the purchase themselves. It may also allow them to avoid closing costs and other fees associated with the purchase. For the assignee, an assignment can offer an opportunity to purchase a property at a lower price than the original purchase price, particularly if the market has changed or the original purchaser is in financial distress. However, there are also potential drawbacks to assignments, such as uncertainty regarding the closing date, tax implications, higher than anticipated closing costs and the potential for disputes between parties.

Assignment Process

The assignment process typically involves several steps. First, the assignor must find a willing assignee who is willing to purchase their interest in the property. They may need to advertise the property and assignment (provided this is permitted by the original vendor in a pre-construction transaction) and negotiate a price with the assignee. Once an assignee is found, the parties must draft an assignment agreement that outlines the terms of the assignment, including the purchase price, closing date, obligations of each party and other relevant details. The assignment agreement must be signed by both the assignor and assignee and may need to be registered with the relevant authorities, such as the Land Registry Office. Finally, the assignee assumes the rights and benefits of the original agreement and is responsible for completing the purchase on the closing date. Throughout the assignment process, it’s important to seek legal advice and follow the requirements outlined in the original purchase agreement.

Fees and Default

Assignment agreements generally include an ‘Assignment Fee’ payable by the assignee to the assignor in exchange for the right to acquire the property. It is important to determine when this fee is payable. If any funds are to be released to the assignor prior to the completion of the original transaction, it must be specified. Otherwise, the default is that they are to be held in trust by the assignor’s solicitor, until the completion of the original agreement of purchase and sale.

If a seller defaults on the original agreement (i.e. fails to close the transactions), the assignment becomes null and void. The funds are returned to the assignee, and the assignor is not liable for any expenses or losses incurred therefrom by the assignee. The assignor can commence legal proceedings against the seller for failing to close the transaction, however, the assignee has little to no such legal remedy available, even in the face of changing market conditions.

Other Considerations

On a final note, the tax implications of assignments can be complex, and it’s important for buyers and sellers to seek legal advice before pursuing an assignment. Depending on the circumstances, both the assignor and assignee may be subject to various taxes, such as capital gains tax, HST, or land transfer tax. For example, while the resale of a residential property is naturally not subject to HST and, accordingly, there is no HST payable on the assignment fee, extra steps must be taken to ensure the same result for new-build properties; the assignment agreement must include a provision stating that part of the consideration is attributable to the reimbursement of a deposit paid by the assignee to the builder. As with the Land Transfer Tax, it is payable by the assignment after the completion date of the original transaction, on the aggregate purchase price (including the assignment fee).

Assignment of agreements of purchase and sale are a common tool used in Ontario real estate transactions to transfer property ownership rights and benefits. They can offer benefits such as flexibility and financial gain but also carry risks and challenges. Understanding the legal, financial, and practical implications of assignments is crucial for anyone considering pursuing this approach.

If you have any questions about assignments of agreement of purchase and sale or real estate law generally, please contact  Jonathan at 289-220-3229 or  [email protected]

• Jonathan Dippolito
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Assignment Sale in Ontario: Definition & How It Works

Real Estate Law

Updated on 

August 11, 2024

An assignment sale is a unique transaction in the real estate market where the property’s original buyer (assignor) transfers their rights and obligations under a purchase contract to a new buyer (assignee) before the property’s completion. Particularly common in pre-construction projects in Ontario, this type of sale offers flexibility for investors and those whose circumstances may have changed. This article explores the definition, legal framework, and process of assignment sales in Ontario, providing essential insights for buyers and sellers engaged in these transactions.

What is an Assignment Sale?

What do the terms assignor and assignee mean, who pays hst on assignment sale, is builder’s consent required for assignment sale, how we can help.

An assignment sale is a transaction in the real estate market where the original purchaser of a property, known as the assignor, transfers their rights and obligations under a purchase agreement to another party, called the assignee, before the completion of the property. This type of sale is usually associated with pre-construction homes or condos that are yet to be built or are under construction at the time of the sale. The assignee takes over the rights and obligations of the original buyer, including any remaining payments to the developer and all other terms originally agreed upon in the contract.

The primary benefit of an assignment sale is its flexibility. It provides an exit strategy for buyers willing to complete the purchase. It offers potential for profit or entry into a property that might otherwise have been unavailable on the open market. For the assignor, it can be a way to liquidate their investment without waiting for the property to be completed. It can be particularly advantageous if their financial situation changes or market conditions favour such a move. Meanwhile, assignees can purchase a new property without waiting for a new phase of development to be launched, potentially benefiting from price appreciation since the original sale.

The assignor is the person or entity that originally purchased a property and holds the rights and responsibilities under the initial purchase agreement. This individual or entity may have entered into a contract to buy a property before its construction but decided to transfer this agreement to another party before the property was completed.

The assignee is the person or entity who accepts the transfer of the property purchase agreement from the assignor. By assuming the assignor’s agreement, the assignee agrees to fulfill the original contract’s terms, including any payments to the developer and adherence to any conditions specified in the agreement.

When a property is sold through assignment, the assignor is responsible for paying the Harmonized Sales Tax (HST) on the sale price, which includes the original price and any profit made on the transaction. To ensure clarity and avoid any legal issues, it is recommended that a Real Estate lawyer prepare the assignment agreement with all necessary information.

The builder’s consent is usually a requirement for assignment sales. The builder’s contract will specify if it is allowed and under what conditions. This clause is necessary because it lets the builder maintain control over who is becoming a part of the development and ensures that the assignee has the financial capability to complete the purchase.

Acquiring the builder’s consent can come with additional fees, and approval procedures can vary depending on the developer. Some builders may charge a flat fee, a percentage of the sale price, or a combination of both to grant permission for the contract assignment. Additionally, the builder may have specific requirements that must be met before approving the assignment, such as the construction status or payment of a certain percentage of the original purchase price. It is advisable to review the terms of the original agreement carefully and prepare for any financial or procedural requirements that obtaining such consent might entail.

It is often possible to obtain a builder’s consent to assign an agreement, even if such consent was not included in the original contract. Many builders will waive the clause prohibiting assignment from the agreement, provided that certain criteria and forms are followed and any required fees are paid. The builder’s sales office can determine if consent is possible and under what conditions. Different builders have varying processes for property assignment.

Assignment sales involve complex legal and financial considerations requiring thorough understanding and careful handling. Potential participants in assignment sales should consult with real estate professionals and legal advisors to navigate the process effectively and ensure compliance with all relevant legal requirements.

Insight Law Professional Corporation is a real estate law firm located in Toronto. If you need more information on real estate transactions, contact us today and learn how a real estate lawyer can help you .

The information provided above is of a general nature and should not be considered legal advice. Every transaction or circumstance is unique, and obtaining specific legal advice is necessary to address your particular requirements. Therefore, if you have any legal questions, it is recommended that you consult with a lawyer.

About the Author

Insight Law Professional Corporation is a Law Firm situated in the heart of Midtown Toronto. We specialize in Real Estate Law, Business and Commercial Law, Wills & Estates, as well as offering Notary Public & Commissioner of Oaths services.

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Assignment of a Purchase and Sale Agreement for a New House or Condominium Unit

From: Canada Revenue Agency

Effective May 7, 2022, all assignment sales in respect of newly constructed or substantially renovated residential housing are taxable for GST/HST purposes. This publication will be updated to reflect this legislative change. For more information about the legislative amendment, refer to  GST/HST Notice 323, Proposed GST/HST Treatment of Assignment Sales .

GST/HST Info Sheet GI-120 July 2011

This info sheet explains how the GST/HST applies to the assignment of a purchase and sale agreement for the construction and sale of a new house.

The term "new house" used in this info sheet refers to a newly constructed or substantially renovated house or condominium unit. A house that has been substantially renovated is generally given the same treatment under the GST/HST as a newly constructed house. Extensive modifications must be made to a previously occupied house in order to meet the definition of a "substantial renovation" for GST/HST purposes. For a full explanation of the factors to consider in deciding if a substantial renovation has taken place, refer to GST/HST Technical Information Bulletin B-092, Substantial Renovations and the GST/HST New Housing Rebate .

In this publication, a house includes a single unit house, a semi detached house, a duplex, a rowhouse unit and a residential condominium unit (condo unit), but does not include a mobile home or floating home.

Where a person enters into a purchase and sale agreement with a builder for the construction and sale of a new house, the person may be entitled to assign their rights and obligations under the agreement to another person (an assignee). Generally, the result of the assignment is that the purchase and sale agreement is then between the builder and the assignee.

This publication addresses the situation where

• a purchaser (referred to as the first purchaser) enters into a purchase and sale agreement with a builder (Builder A) for the construction and sale of a new house, and
• the first purchaser subsequently assigns the agreement to an assignee (referred to as the assignee purchaser) before Builder A transfers possession or ownership of the house to the first purchaser and before any individual has occupied the house as a place of residence or lodging.

Generally, upon entering into an agreement for the construction and sale of a new house, the first purchaser is considered to have acquired an interest in the house. For GST/HST purposes, the assignment of the agreement to the assignee purchaser is normally considered to be a sale of the first purchaser's interest in the new house. The sale of an interest in a new house is generally taxable where the person selling the interest is a builder of the house.

For GST/HST purposes, the term "builder" is specifically defined and is not limited to a person who physically constructs a house. There are several instances in which an individual or other person is a builder for GST/HST purposes. For more information on persons who are included in the definition of "builder", refer to GST/HST Memorandum 19.2, Residential Real Property .

This info sheet addresses only whether a person is a builder as described in the following paragraph.

Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances

A builder includes a person who acquires an interest in a new house before it has been occupied by an individual as a place of residence or lodging for the primary purpose of selling the house or an interest in the house or leasing the house, other than to an individual who is acquiring the house otherwise than in the course of a business or adventure or concern in the nature of trade. When that person is an individual, the individual must acquire the interest in the course of a business or an adventure or concern in the nature of trade in order to be a builder described by this paragraph.

Even if a person is not a builder as described in the preceding paragraph, the person may be a builder based on one of the other definitions of the term as described in GST/HST Memorandum 19.2.

Assignment of a purchase and sale agreement by a person other than an individual

Where a person other than an individual (e.g., a corporation) is a builder as described in the section "Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances" and the person assigns a purchase and sale agreement for a new house, the person's sale of the interest in the house is subject to the GST/HST whether the sale takes place in the course of a business, an adventure or concern in the nature of trade, or otherwise.

Assignment of a purchase and sale agreement by an individual

If an individual enters into a purchase and sale agreement for one of the primary purposes described in the section "Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances", the sale of the interest in the house (or the house itself) is normally considered to be made in the course of an adventure or concern in the nature of trade or, depending on all of the surrounding circumstances, in the course of a business. If it is established that an individual is selling an interest in a new house in the course of a business or adventure or concern in the nature of trade, the individual is considered to have entered into the purchase and sale agreement for the primary purpose of selling the house or an interest in the house.

Whether the activity of acquiring an interest in a house, as a result of entering into a purchase and sale agreement, is done in the course of a business or an adventure or concern in the nature of trade is a question of fact. For more information on how to determine whether an activity is done in the course of a business or an adventure or concern in the nature of trade, refer to Appendix C of GST/HST Memorandum 19.5, Land and Associated Real Property .

Factors in determining the primary purpose

All of the relevant factors surrounding entering into a purchase and sale agreement should be considered in determining the primary purpose for a person's acquisition of an interest in a new house.

The following factors may indicate that, for GST/HST purposes, a person entered into a purchase and sale agreement for the primary purpose of selling an interest in the new house or the house itself. The factors are not listed in any particular order and there is no intent to weigh one more heavily than another.

• The person offers to sell their interest in the house or takes other actions to attract buyers before, or while, the house is under construction.
• The person finances the purchase of the house by a short-term mortgage, or an open mortgage that can be paid off without penalty, rather than by a long-term or closed mortgage.
• Financing of the house is beyond the person's means and that person is relying on the increased value and saleability of the house, or an interest in the house, in a rising housing market.
• The person is an individual and their stated intention to occupy the house as a place of residence is not supported by the circumstances of the case. For example, an individual has a family of four and enters into a purchase and sale agreement for a one-bedroom condo unit where they are not contemplating any changes in family circumstances.
• The person's pattern of activity is such that their occupancy of the house does not have the qualities or characteristics of being permanent. For example, the person purchases more than one house at or around the same time. This factor may be given extra weight where the person has previously entered into a purchase and sale agreement for purposes of selling the house or an interest in the house. There are no outward indicators to support a contrary primary intention (i.e., an intention contrary to an intention of resale). For example, an individual is selling a condo unit, one or more of the above factors are present, there are no physical actions or evidence that the individual's primary intention was to live in the condo unit, use it as a vacation home, or rent it to another individual for use as their place of residence, and no evidence that the sale of the condo unit was triggered by some unforeseen event.

In order for the acquisition of an interest in a new house to be for one of the primary purposes described in the section "Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances", the intention to sell the house or an interest in it, or to lease the house in the manner described in that section, must have existed at the time of acquiring the interest. Nonetheless, the intention at the time of acquisition may be demonstrated over a period of time.

If an individual acquired an interest in the house for the primary purpose of using it as a place of residence, the person is not considered to be a builder of the type described in this info sheet even if, at a later point in time, the person sells the house or an interest in the house. However, the person may still be a builder if the person meets one of the other definitions of that term as described in GST/HST Memorandum 19.2.

The following examples illustrate when a person may or may not be a builder of a new house.

Sarah, Francine, and Angela are roommates renting a three-bedroom house. They entered into a purchase and sale agreement with a builder in January 2010 for a one-bedroom condo unit in a new condominium complex that was to be built. The purchase price under the agreement was $300,000 and the closing date was July 31, 2013.

In March 2011, the fair market value of the new condo unit had increased by 50%. They entertained several offers for the sale of their interest in the condo unit before assigning it to James. No individual had occupied the condo unit as a place of residence or lodging when they sold their interest in the unit. They split the proceeds, which they each used as a down payment to buy their own homes.

As it would not be practical for the three individuals to live in the condo unit together, they considered several offers for their interest in the unit, and there are no indicators to support a contrary intention, Sarah, Francine and Angela are considered to have acquired their interest in the condo unit for the primary purpose of selling the unit or an interest in it. The sale is considered to be made in the course of a business or adventure or concern in the nature of trade. Accordingly, Sarah, Francine, and Angela are all builders of the condo unit for GST/HST purposes. As they are builders of the unit and the sale of their interest in the unit is not exempt, GST/HST applies to the sale of each of their interests.

Pascal and Chantal own a four-bedroom house where they live with their three children. This is the only home they have ever owned and lived in. They have never purchased any other real property.

In June 2009, they entered into a purchase and sale agreement with a builder for a 1-bedroom condo unit in a new high-rise condominium complex that was to be built. The purchase price under the agreement was $275,000 and the closing date was June 30, 2010. In May 2010, they sold their interest in the new condo unit for $400,000 before it had been occupied by any individual as a place of residence or lodging. They used the sale proceeds to build an addition to their current home.

Although Pascal and Chantal have no history of buying and selling real property, it would not be practical for their family of five to occupy the condo unit as their place of residence. Lacking evidence to support a contrary intention, their primary purpose in acquiring the interest in the condo unit is considered to be for the purpose of selling the condo unit or an interest in it in the course of a business or an adventure or concern in the nature of trade. Accordingly, they are builders of the new condo unit for GST/HST purposes. As the sale of their interest in the unit is not exempt, GST/HST applies to the sale of their interest.

Eric and Gina owned a 3-bedroom house where they lived with their 3 children. They entered into a purchase and sale agreement with a builder in October 2010 to purchase a new 4-bedroom house that was to be built. They intended to use the new house as their primary place of residence as it was located much closer to the children's school and to Eric and Gina's workplaces and had more space. The closing date is July 31, 2011.

Eric and Gina sold their current home in January 2011 and moved into a rented home they planned to live in until their new house was ready. However, in June 2011, Gina's mother became ill and moved in with them as she was no longer able to live on her own.

Eric and Gina decided that the new house would no longer be large enough and that they would now need a house with a granny suite. They sold their interest in the new 4-bedroom house so that they could buy a bigger home that would suit their changed needs.

Eric and Gina's sale of their original home and temporary move to a rented house during the construction of the new home and their choice to purchase a home located closer to school and work support that their intention in acquiring the interest in the new house was to use the house as their primary place of residence. Given this, and the fact that their only reason for selling the interest was due to a change in personal circumstance (i.e., the new house would no longer accommodate their family's needs), they are not considered to have acquired the interest in the house for the primary purpose of selling it. Accordingly, they are not builders of the new house for GST/HST purposes and the sale of their interest in the house is exempt.

Cindy entered into a purchase and sale agreement with a builder in November 2010 for a new house that was to be built. She intended to use the house as her primary place of residence. Her new home would be located within walking distance from her workplace and would be closer to her family than the apartment she is currently renting. The closing date for the purchase is September 30, 2011.

In July 2011, Cindy's employer announced that it was relocating to another city located three hours away. To keep her current job, Cindy had to move to that city. She sold her interest in the house to John.

Since Cindy had intended to use the house as her primary place of residence and her only reason for selling her interest in the house was due to work relocation, she did not acquire the interest in the house for the primary purpose of selling it. Therefore she is not a builder of the house for GST/HST purposes and the sale of her interest in the house is exempt.

Assignment fees

The consideration charged for the sale of an interest in a house generally includes amounts that a person paid to a builder (e.g., a deposit) and that the person wants to recover when assigning their interest in the house. The sale price for the interest may also include a profit, i.e., an amount over and above amounts the person had paid to the builder. If a person's sale of their interest to an assignee purchaser is taxable, the total amount payable for the sale of the interest is subject to GST/HST, including any amount the person paid as a deposit to the builder, whether or not such an amount is separately identified.

A first purchaser enters into a purchase and sale agreement for a new house with a builder (Builder A) and pays a deposit of $10,000 at that time. The first purchaser does not make any further payments to Builder A. The first purchaser subsequently assigns the agreement to an assignee purchaser for $15,000. If the sale of the interest in the house from the first purchaser to the assignee purchaser is subject to GST/HST, tax applies to the full $15,000. This is the case even if the assignment agreement identifies that the $10,000 is a recovery of the deposit that the first purchaser paid to Builder A.

The assignment of a purchase and sale agreement for a new house may be subject to the approval of the builder with whom the first purchaser originally entered into the agreement to construct and sell the new house. The agreement may list conditions related to the first purchaser's right to assign the agreement to an assignee purchaser and, in many cases, the builder charges a fee to the first purchaser for the assignment of the agreement to another person.

The fee charged by the builder in such circumstances is generally subject to the GST/HST.

Eligibility for a GST/HST new housing rebate and provincial new housing rebate (where applicable) where a purchase and sale agreement is assigned

The GST/HST new housing rebate, and where applicable, a provincial new housing rebate, may be available for a new house purchased from a builder and for owner-built new housing. Guide RC4028, GST/HST New Housing Rebate , sets out the eligibility criteria for both types of GST/HST new housing rebates and provincial new housing rebates.

If the first purchaser (the assignor) makes a taxable sale of an interest in a house, i.e., the first purchaser is a builder and assigns the purchase and sale agreement to an assignee purchaser, the first purchaser would not be eligible for either a GST/HST new housing rebate or provincial new housing rebate as they did not acquire the house for use as their primary place of residence. Even if the sale of the interest in the house by the first purchaser is not subject to GST/HST (i.e., in situations where the first purchaser is not a builder of the house), the first purchaser would generally not be eligible for either a GST/HST new housing rebate or a provincial new housing rebate as the conditions for claiming the rebates are not met (e.g., ownership of the house would not transfer to the first purchaser, but to the assignee purchaser).

The assignee purchaser, if an individual, may be eligible for a GST/HST new housing rebate, and where applicable a provincial new housing rebate, where the assignee purchaser receives an assignment of a purchase and sale agreement for a new house. The assignee purchaser would have to meet the eligibility conditions for the rebates as set out in Guide RC4028.

Where a purchase and sale agreement for a new house is assigned, there may be two builders of the house – the original builder (Builder A) and the first purchaser (the assignor). If that is the case, an assignee purchaser would generally have to pay the GST/HST to Builder A for the purchase of the new house and to the first purchaser for the purchase of the interest in the new house.

Claiming a GST/HST new housing rebate when there is more than one builder

In some cases, the builder of a new house pays or credits the amount of the GST/HST new housing rebate, and where applicable, a provincial new housing rebate, to the purchaser of the house. In this case, the builder credits the amount of the new housing rebates to the purchaser by reducing the total amount payable for the purchase of the house by the amount of the expected rebates.

Where this happens, the purchaser and the builder have to sign Form GST190, GST/HST New Housing Rebate Application for Houses Purchased from a Builder , and the builder has to send the form to the Canada Revenue Agency (CRA). As the purchaser receives the amount of the rebate from the builder, the builder may claim the amount as a credit against its net tax when it files its GST/HST return.

Only one new housing rebate application can be made for each new house. Therefore, an assignee purchaser cannot submit a rebate application through a builder (Builder A) for the tax paid to Builder A on the purchase of the house and submit a second rebate application through the first purchaser (the assignor), or directly to the CRA, for the tax paid to the first purchaser on the purchase of the interest in the house.

In such cases, the assignee purchaser may want to file their new housing rebate application directly with the CRA rather than through Builder A. In this way, the assignee purchaser can include in the new housing rebate application the tax paid to Builder A and the tax paid to the assignor in determining the amount of their GST/HST new housing rebate and, where applicable, a provincial new housing rebate.

This info sheet does not replace the law found in the Excise Tax Act (the Act) and its regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate regulation, or contact any CRA GST/HST rulings office for additional information. A ruling should be requested for certainty in respect of any particular GST/HST matter. Pamphlet RC4405, GST/HST Rulings – Experts in GST/HST Legislation explains how to obtain a ruling and lists the GST/HST rulings offices. If you wish to make a technical enquiry on the GST/HST by telephone, please call 1-800-959-8287.

Reference in this publication is made to supplies that are subject to the GST or the HST. The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 15% in Nova Scotia, and 12% in British Columbia. The GST applies in the rest of Canada at the rate of 5%. If you are uncertain as to whether a supply is made in a participating province, you may refer to GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of Supply Rules for Determining Whether a Supply is Made in a Province .

If you are located in Quebec and wish to make a technical enquiry or request a ruling related to the GST/HST, please contact Revenu Québec at 1-800-567-4692. You may also visit the Revenu Québec Web site to obtain general information.

All technical publications related to GST/HST are available on the CRA Web site at www.cra.gc.ca/gsthsttech .

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• Advice for Agents
• Legal Issues

Assigning an Agreement of Purchase and Sale

Martin Rumack | Jul 26, 2016 | 0 comments

At its essence, an assignment of an Agreement of Purchase and Sale – informally known as “flipping a home” – is a simple concept: A buyer of a new home allows someone else to take over the purchase contract, which allows that person to buy the home.

More specifically, the original buyer enters into a formal Agreement of Purchase and Sale with a builder, and then allows another person – who we will call the “new buyer” – to step into his or her shoes through what is legally known as an “assignment” of that original agreement or offer to buy. The new buyer pays the original buyer a higher price than what was set out in that original agreement; the difference is the original buyer’s profit. All of this takes place after the original buyer has agreed to buy from the builder, but before the deal closes; the original buyer never takes title to the property.

This arises primarily with homes: For newly built homes with typically long closing dates (often 18 months or more), an assignment is particularly attractive in situations where the builder has already sold all of the units in the development early on, but where there is still demand for soon-to-be-completed homes and new condominium units in the development.

The assignment of a new condominium unit is also interesting for similar reasons, although the time frame may be significantly longer depending on when the assignment occurs. This puts the original buyer in position to make a profit by inflating the new price well above what he or she agreed to pay the builder in the first place.

What is the benefit to the new buyer? There can be several:

• The new buyer may be able to buy into a desirable neighbourhood at a time when there are no more units available to be purchased directly from the builder;
• Even taking the original buyer’s profit into account, the assignment may give the new buyer a price advantage over other properties that are currently on the market; and
• Depending on the timing of the assignment, the new buyer may be positioned to choose finishes and make minor changes to the yet-to-be-built home.
• Whatever the respective motivations of the original and new buyer, the assignment of an Agreement of Purchase and Sale has many specific features – and just as many potential pitfalls.

When can an agreement of purchase and sale be assigned?

Unlike the standard Ontario Real Estate Association (OREA) agreements, many builders’ own (customized) Agreements of Purchase and Sale contain a clause that generally prohibits the assignment of the contract outright – or else allows it only with strict conditions and in exchange for a significant fee payable to the builder.

In fact, the vast majority of new home or condominium-purchase agreements do not allow the original buyer to assign the contract to someone else and stipulate that any attempt by the buyer to do so, or to list the home for sale on the MLS system or otherwise, or else list the property for rent, will put the original buyer in breach of the agreement. This triggers the builder’s right, with notice, to terminate the original agreement, keep the original buyer’s deposit and seek additional damages from him or her. (And in most cases, the original buyer’s agreement is “dead”; he or she cannot go back and try to complete the transaction as if no assignment had taken place).

All of this means that anyone who has agreed to purchase a home from a builder should give careful consideration to, and should seek legal advice prior to signing the agreement, or in the case of condominium units during the 10-day cooling-off period in order to determine whether it’s possible to assign the agreement in the first place.

This in turn involves a careful review of the clauses in that agreement.

Typical (and not-so-typical) provisions

As a practical matter, there are as many variations in these types of provisions as there are builders.

Many Agreements of Purchase and Sale will include a largely standard “no assignment” clause, which disentitles the original buyer from “directly or indirectly” taking any steps to “lease, list for sale, advertise for sale, assign, convey, sell, transfer or otherwise dispose of” the property or any interest in it.

A potential exception – and this is important – arises if the builder gives prior written consent, although in the more draconian version of these kinds of contract, that consent may be “unreasonably and arbitrarily withheld” by the builder, essentially on its whim. In other words, the buyer is not allowed to deal with the property, unless the builder pre-approves it in writing, but in many cases the builder has no obligation to give that approval and may withhold it for any reason whatsoever, including unreasonable and arbitrary ones.

(With that said, the “no assignment” clause in some agreements will allow for express exceptions or situations where the builder will not withhold consent, for example: a) assignments made to a member of the original buyer’s immediate family; or b) where the builder has determined that a sufficient and satisfactory percentage of the available units have already been sold).

The bottom line is that the basic clause in an Agreement of Purchase and Sale may or may not allow for the assignment of the agreement to a new buyer, and if it is allowed, it will be subject to specified conditions such as obtaining the builder’s written consent. Most agreements will embellish this basic clause by adding further written stipulations such as:

• Having both the original buyer and the new buyer sign an Assignment Agreement that has been drafted by the builder;
• Mandating the original buyer will not assign the agreement until the builder has managed to sell a certain percentage of the units in the overall development (for example, 85 or 90 per cent), and even then it must be with the builder’s written consent as usual;
• Requiring the original buyer to pay a fee to the builder of (for example) $5,000 plus taxes as part of obtaining the builder’s consent to the assignment;
• Requiring the original buyer to pay another fee plus taxes to the builder’s lawyer (ostensibly as a sort of “legal processing fee”);
• Getting the pre-approval of any lending institution or mortgagee that is providing funding to the builder for construction or otherwise;
• Assuming the builder agrees to the assignment in the first place, prohibiting any further assignments of the offer by the new buyer to any subsequent party;
• Confirming that the breach of any of the original buyer’s promises in relation to how and when an assignment can occur will be considered a breach of the whole agreement (and one that cannot be remedied); and
• Requiring the original buyer to confirm in writing that the property is not being purchased for short-term speculative purposes.

Note that even if the Agreement of Purchase and Sale does not expressly allow or provide for it in writing, some builders will permit an original buyer to make an assignment nonetheless. This is because it is always in the builder’s discretion to give up (usually for a fee) its right to technically insist on the purchase going ahead with the original buyer.

Getting the builder’s consent

It’s important to remember that, initially, the original buyer and the builder had a valid legal contract in place that obliged the buyer to purchase a home or condominium unit from the builder. That original buyer, for whatever reason – whether it’s a change of circumstances (such as a change in a marital situation, job transfer to another city, province or country; birth of children resulting in a home/condominium unit being too small for the buyer), cold feet, or simply the desire to make a profit – has subsequently decided to “sell” that right to buy to the new buyer.

To protect the builder, the assignment will contain clauses that are designed to safeguard the builder’s rights. The most important one is that, as discussed, the builder must give its written consent to the assignment. This will often involve specific builder-imposed requirements, fees and forms that must be completed.

Once consent has been obtained, there may be additional restrictions on the manner in which the original owner can market the property. For example, some builders will insist that the property is not to be listed on the MLS system (where it may be competing with the builder’s own listings for still-unsold homes and units in the same development); if the original owner does so nonetheless, it will be tantamount to a breach of the Agreement of Purchase and Sale, which could entitle the builder to damages, or rescission of the Agreement of the Purchase and Sale while retaining the deposits paid, as well as the monies paid for extras.

However, aside from any marketing/advertising restrictions that may be imposed, the original buyer must clearly indicate in any listing that it is an assignment of an Agreement of Purchase and Sale, not merely an ostensible sale from the original buyer.

Continuing liability after assignment

One key provision in the Agreement of Purchase and Sale – and one that is easy to overlook – may significantly impact whether an original buyer will want to assign his or her agreement at all.

Even though the original buyer has essentially transferred his or her right to buy the property to the new buyer, the original buyer is not fully off the hook. Rather, under the terms of the assignment document, the original buyer can remain liable to go through with the contract if the new buyer does not complete the transaction with the builder.

This written obligation appears in the original buyer’s Agreement of Purchase and Sale, and is couched in phrases that give the buyer continuing liability for the “covenants, agreements and obligations” contained the original agreement. But the net effect is that the original buyer remains fully liable should the agreement between the builder and the new buyer collapse. The agreement may also stipulate that the assignee, meaning the person receiving the benefit of the assignment (the new buyer) must sign an “assumption covenant”, which creates a binding contract between the new buyer and the builder.

(Incidentally, in contrast some builder’s agreements quite conveniently allow the builder itself to freely assign the agreement to any other builder registered with Tarion, which completely releases the builder from its obligations.)

The original buyer’s continuing liability under the Assignment Agreement is a major drawback in these types of arrangements. The original buyer always has to balance the risks and rewards inherent in this scenario.

Documenting the transaction

Assuming that the assignment of an offer is even permitted by the builder, then (as with all contracts) it must be documented to reflect and protect the legal right of the parties.

The technical aspects of an assignment require more than simply taking the original buyer’s Agreement of Purchase and Sale with the builder, scratching out his or her name, and replacing it with the new buyer. (Although, in some cases people do try to “squeeze in” assignment-of-offer terminology into a new Agreement of Purchase and Sale made out in the new buyer’s name – but this is definitely NOT recommended).

Rather, a properly documented transaction makes reference to the Agreement of Purchase and Sale between the original buyer and the builder, but adds a separate document called an “Assignment of Agreement of Purchase and Sale.”

OREA provides a standard form that can be used, although in many cases those builders who permit assignments will insist that the original buyer and the new buyer use the builder’s customized assignment forms, rather than the OREA standardized version.

The specifics of the deal – who pays what?

1) recouping the original buyer’s costs .

At the point where the assignment is being negotiated, the original buyer has typically paid a deposit to the builder, may have pre-paid for certain upgrades and extras and has a large balance owing. This means that in the course of striking a deal to achieve the assignment, the original buyer should give some serious thought to the various costs, fees, pre-paid deposits and tax repercussions of the deal, and how these should be reflected in the price that he or she will want the new buyer to pay under the Assignment Agreement. The timing of the payment(s) will also be a consideration.

For both original buyer and new buyer who are considering an assignment arrangement, here are some of the questions to ask:

• Does the price to be paid by the new buyer include any fee that the builder is charging in exchange for the original buyer’s right to assign the Agreement of Purchase and Sale?
• Does it include any deposits paid by the original buyer to the builder, after the agreement was signed? Does it include any interest that has been earned on those deposits?
• Does it clearly state that the new buyer will take over the entire contract, including the adjustments that are to be paid to the builder on closing? Or are those adjustments to be split between new and original buyer?
• Does the price include money paid by the original buyer for extras and upgrades?
• Are there any additional deposits that are still owing to the builder, under the original agreement?
• Who is responsible to pay the additional fee (the builder-imposed fee) in exchange for the builder giving consent? Usually this will be the original buyer, but the parties may negotiate otherwise.
• Does the new buyer agree to take on responsibility under the original agreement for making additional deposit payments until the final closing date (which may still be months or even years away)?
• Does the new buyer have a full understanding of the amount of all the adjustments that must be paid to the builder pursuant to the original agreement?
• If the original buyer has negotiated any special financial incentives into the Agreement of Purchase and Sale that has been reached with the builder, have these been addressed in terms of whether the new buyer will receive the benefit of them?

In any case, the final purchase price payable from the new buyer to the original buyer will typically be made up of:

• The outstanding balance owed to the builder by the original buyer, that will now be payable by the new buyer;
• The total deposits already paid by the original buyer to the builder;
• The total payments already paid by the original buyer to the builder for any upgrades and extras and
• The profit that the original buyer stands to make in the deal.

2) Deposits and interest on deposits

The treatment of deposits and the interest they may have earned merits a brief separate discussion.

Under virtually all Agreements of Purchase and Sale with builders, the original buyer will be required to pay a series of deposits to the builder, starting with the initial deposit paid when the agreement is signed and on a set payment schedule thereafter. The total of those deposits can be significant.

Once the agreement has been assigned to the new buyer, how those deposits are treated will form part of the negotiations. Typically, the original buyer will get those deposits back from the new buyer as part of the overall purchase price of the assignment transaction; he or she will usually receive them at the time the assignment agreement is entered into and the builder has consented to the assignment.

The potential problem with an Assignment Agreement is financing. The original buyer will want his deposit funds returned before closing, but if the new buyer does not have funds on-hand, he or she may find that financing is very difficult to obtain because banks do not advance mortgage funds at the time an Assignment Agreement is entered into; rather, the financial institution will provide funds only on final closing. This can serve as a roadblock to the new buyer’s ability to repay the deposits and potentially to embark on the transaction at all.

The question of who is entitled to the interest on any deposits pre-paid to the builder is also a topic for the original and new buyers to discuss. In many cases, the interest will be only a small amount (if any) and may be credited to the new buyer, rather than the original one. However, in cases where the original buyer has paid significant deposits over time, and where larger interest amounts have accrued, the parties may want to negotiate a different outcome.

3) Land Transfer Tax

When negotiating the deal, the original buyer and the new buyer must discuss the structure of the deal between them, to ascertain the exact selling price on which the Land Transfer Tax (and any Municipal Land Transfer Tax) should be payable; whether it is the original buyer’s price with the builder (net of HST and the HST New Housing Rebate, which is discussed below), or whether it’s the newly inflated price being paid by the new buyer under the assignment.

Generally speaking, it will be the latter, although in some assignment arrangements the parties have attempted to structure it so that they pay the Land Transfer Tax based on the lower initial price asked by the builder, while taking the position that difference between that and the increased price is merely the “fee” paid to acquire the original Agreement of Purchase and Sale entered into with the builder (thus avoiding having the tax calculated on the higher sale price).

In any case, once the Assignment Agreement is reached, it will be the new buyer who is obliged to pay Land Transfer Tax and any Municipal Land Transfer Tax on closing, not the original buyer.

4) HST and the HST New Housing Rebate 

The issue of how HST is to be treated in an assignment scenario is crucial, but is fraught with pitfalls.

The first issue is how HST on the transaction should be calculated. Because the new buyer’s price will inevitably be higher than the one the original buyer agreed to pay to the builder, there is an important issue as to whether the difference – meaning the original buyer’s profit – should be subject to HST (and if so, who will pay it in the transaction).

This determination hinges on whether the assignment is a “taxable supply” under the tax legislation and on whether the original buyer can be considered or deemed a so-called “builder” of the home for HST purposes. This, in turn, involves a number of complex legal concepts and factual findings – including the intentions of the original buyer as to whether the home is going to be a primary residence.

Next, there is the issue of the HST New Housing Rebate. In a typical scenario, the original buyer may have been entitled to the HST New Housing Rebate, based on meeting numerous qualifying requirements and stipulations. However, once he or she assigns the agreement, that eligibility is obviously lost because he or she is no longer taking title to the home on closing. Only one HST New Housing Rebate application per dwelling can be filed.

But once there has been an assignment, it is the new buyer’s circumstances that will determine whether the opportunity for an HST Rebate exists. He or she will have to meet the stipulated legislated requirements and may either apply directly to the Canada Revenue Agency (CRA), or arrange with the builder to have the rebate amount credited right at closing.

Note that the new buyer may want to take steps to protect his or her position in this regard. For example, when negotiating the Assignment Agreement, the new buyer should make the agreement conditional on receiving written confirmation from the builder that any HST New Housing Rebate will be credited to him or her on closing, assuming that the qualifying requirements are otherwise met. Otherwise, if this commitment is not in writing, the builder, being entitled to exercise its discretion on whether to credit the buyer with the rebate amount on final closing, can withhold it and force the new buyer to apply to CRA directly after closing. Obtaining this commitment in writing is especially important, given the likely lack of prior dealing between the builder and the new buyer.

Other things to consider:

1) who is responsible for the documentation.

In addition to ascertaining whether the original buyer or the new buyer will pay for certain items, it is also important to determine – in advance – which of them will take care of arranging the documentation. The questions to ask:

• Who will prepare the documents needed to achieve the assignment? And who will bear the cost?
• Will the builder’s lawyer prepare the builder’s needed consent to the assignment?
• Since the new buyer cannot renegotiate any of the provisions of the agreement that the original buyer entered into with the builder, are any of those terms objectionable, and if so, how will they be resolved and who will bear the cost?

As discussed, the Assignment Agreement will be conditional on the builder giving its consent. From the new buyer’s standpoint, it should also be made conditional on him or her giving close review to the original Agreement of Purchase and Sale (as signed by the original buyer), the Assignment Agreement, as well as any amendments, waivers, notices (and for condominium purchases, the Disclosure Statement). If for no other reason, it will give the new buyer a chance to consider the specific list of adjustments for which he or she will be responsible to pay on closing. Needless to say, this review should be undertaken with the guidance of an experienced lawyer.

Once the terms of the assignment are settled and the builder’s written consent has been obtained, the Assignment Agreement must be drafted and is attached to the original Agreement of Purchase and Sale that the original buyer entered into with the builder.

Incidentally, the builder may have certain requirements that must be incorporated into the process and accommodated as well. For example, the builder will require the new buyer to provide I.D. and will need confirmation that he or she has the financing required to close in place.

2) Tarion registration 

When negotiating the assignment arrangement, the original and new buyers must be aware of the impact of the New Home Warranty Program as administered by Tarion, particularly if the home being “flipped” is a condominium unit.

3) Financing

There may be financial issues for the new buyer to work out before the deal can go ahead.

As usual, the transaction may be conditional on financing, which will be arranged on the higher price that the new buyer has agreed to pay. However, since some mortgage brokers may be unfamiliar with financing an assignment transaction, getting approval for the new buyer’s purchase may be challenging. This is something that needs to be investigated long before the original buyer and the new buyer start their negotiations in earnest.

4) Commission

A final issue to be negotiated is who is paying the commission with respect to the Assignment Agreement transaction. This includes consideration of the specific commission rate, together with the details on how and when the commission gets paid.

While an Assignment Agreement can be beneficial to both the original and the new buyer – and even to the builder (in extra fees) there are many issues to be addressed and negotiated.

As an agent, make sure your client obtains legal advice prior to finalizing any agreement to assign the original Agreement of Purchase and Sale.

Be careful… be aware… and think!

• Agreement of Purchase and Sale

Toronto lawyer Martin Rumack’s practice areas include real estate law, corporate and commercial law, wills, estates, powers of attorney, family law and civil litigation. He is co-author of Legal Responsibilities of Real Estate Agents, 4th Edition, available at the TREB bookstore and at LexisNexis . Visit Martin Rumack’s website .

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Understanding the Assignment Clause Q & A: How It Works in Contracts and Agreements

• 24 July 2023
• 10 min read
• Assignee assignment clause Assignor Buying Property Buying Real Estate Contract modification Contractual transfer Knowing Your Property Q&A Real estate transaction
• Pre Constructions
• Understanding the Assignment C ...

In real estate transactions, an assignment clause is a contractual provision that allows one party (the “assignor”) to transfer their rights, interests, or obligations under the contract to a third party (the “assignee”). The assignment clause provides the framework for how such transfers can take place and outlines the conditions and terms for the assignment.

It’s important for both buyers and sellers in real estate transactions to be aware of the assignment clause’s existence in the purchase agreement. Properly understanding and complying with the assignment clause can facilitate a smooth and lawful transfer of rights or ownership in the property.

An assignment clause is a legal provision that can be found in contracts and agreements. It outlines the conditions under which one party (the assignor) can transfer their rights, duties, or obligations under the contract to another party (the assignee). Assignment clauses are commonly used in a variety of contracts, including leases, loans, and business agreements. Understanding this clause is important, as it can have significant implications for all parties involved.

An assignment clause, found in various contracts and agreements, delineates the conditions under which one party can transfer their rights, obligations, or benefits to another party. This clause is pivotal because it affects the dynamics of the contractual relationship.

Typically, an assignment clause stipulates whether assignment is allowed and, if so, whether it necessitates the consent of the non-assigning party. This consent can be absolute or subject to reasonable conditions. In some cases, contracts explicitly forbid assignment, while others differentiate between assigning rights (e.g., payment entitlements) and duties (e.g., service obligations).

Understanding the assignment clause is essential as it carries significant legal and financial implications. Assignors might still be held liable if the assignee fails to meet obligations, and financial obligations may shift hands. Parties should carefully review this clause to ensure compliance and consider seeking legal advice when necessary, as it can have a lasting impact on the contract’s execution and outcomes.

Questions & Answers (Q & A)

Q: What is an assignment clause in a contract?

A: An assignment clause is a contractual provision that allows one party to transfer or “assign” their rights, benefits, and obligations under the contract to a third party, known as the “assignee.” This provision outlines the conditions and terms under which such transfers can occur.

Q: How does an assignment clause work?

A: When one party to the contract wishes to transfer their rights and obligations to another party, they must review the assignment clause to determine if it permits such transfers. In many cases, the assignor (the party making the assignment) must obtain the written consent of the other party to the contract before proceeding. Once the assignment is completed and the assignee assumes the rights and duties, the assignor is usually released from further obligations under the original contract.

Q: What are the key elements of an assignment clause?

A: The key elements of an assignment clause include:

• Clearly defining the parties involved (assignor and assignee).
• Stating the conditions under which assignments are allowed.
• Specifying the procedures for seeking consent and providing notice.
• Outlining the liabilities and obligations of the assignee after the assignment.

Q1: What are the typical conditions for assignment?

A1: The conditions for assignment can vary based on the specific contract and the intentions of the parties involved. Some common conditions include obtaining the consent of the other party, providing written notice of the assignment, and ensuring the assignee has the necessary qualifications to fulfill the obligations under the contract.

Q2: What are the requirements for making an assignment under the clause?

A2: The specific requirements for making an assignment under the clause are typically outlined in the contract. They may include obtaining the consent of the other party, providing written notice of the assignment, or complying with any conditions set forth in the clause. It is essential for the assignor to adhere to these requirements to ensure a valid and enforceable assignment.

Q3: Why are assignment clauses included in contracts?

A3: Assignment clauses are included in contracts to provide flexibility and allow parties to transfer their rights and obligations under the contract when needed. They can be beneficial in situations where a party wants to sell or transfer their interests in a project, business, or real estate property without entirely terminating the contract.

Q4: Are there any restrictions on assignments?

A4: Yes, some contracts may include restrictions or prohibitions on assignments. These restrictions are typically in place to protect the interests of the parties involved. For example, contracts involving personal services or unique skills may restrict assignments to ensure the intended parties are directly involved.

Q5: What happens if an assignment is not allowed or improperly executed?

A5: If an assignment is not allowed or not executed according to the terms of the assignment clause, it could result in a breach of contract. The party attempting to make the assignment may face legal consequences, and the other party may seek damages or take legal action to enforce the original contract.

Q6: Can an assignment clause be modified or negotiated in a contract?

A6: Yes, like any other contractual provision, the assignment clause can be negotiated and modified between the parties before the contract is finalized. Parties may choose to include specific language or conditions regarding assignments to suit their particular needs and interests.

Q7: What happens to the original party after the assignment is made?

A7: Once the assignment is completed and the assignee assumes the rights and obligations, the original party (assignor) is generally released from any further duties under the contract. The assignee becomes the new party responsible for fulfilling the terms of the agreement.

Q8: Should legal advice be sought before making an assignment?

A8: Yes, seeking legal advice is highly recommended before making an assignment or responding to an assignment request. An attorney can review the contract, assess the implications of the assignment, and ensure that all legal requirements are met to avoid potential disputes or breaches of contract.

Q9: What is the significance of the assignment clause in a real estate contract, and why is it crucial for both buyers and sellers to be aware of its implications?

A9: The assignment clause in a real estate contract outlines whether the buyer can transfer their rights and obligations to another party. It is crucial for both buyers and sellers to understand this clause as it can impact the transaction’s dynamics. For sellers, it can determine if the buyer can assign their purchase agreement to another party. Buyers need to know if they have the flexibility to assign their contract to someone else. Being aware of the assignment clause’s implications ensures all parties involved in the transaction are on the same page and that the process proceeds smoothly.

Q10: In what situations might a buyer or seller want to exercise their rights under the assignment clause, and how does this affect the real estate transaction?

A10: Buyers might want to exercise their rights under the assignment clause if they are unable to complete the purchase themselves, perhaps due to a change in circumstances. Similarly, sellers might allow the assignment if they are open to selling to another party. The key is to understand that the assignment clause can lead to a change in the buyer, which could affect the deal’s terms or timeline. Both buyers and sellers should assess the potential impact of an assignment on the transaction and decide if it aligns with their goals.

Q11: Can real estate brokers play a role in helping clients navigate assignment clauses, and how can they assist in this regard?

A11: Real estate brokers can certainly play a valuable role in helping clients understand assignment clauses. They can explain the clause’s terms, implications, and its importance. Brokers can facilitate communication between buyers and sellers regarding assignments and help negotiate terms that are acceptable to both parties. Their expertise in contract interpretation and negotiation can be instrumental in ensuring that the assignment process, if it occurs, is conducted smoothly and in compliance with the contract.

Q12: What are the potential legal and financial risks involved with assignment clauses in real estate transactions, and how can these be mitigated?

A12: Legal and financial risks in real estate assignments can include potential disputes, unexpected liabilities, or financial implications. To mitigate these risks, it’s essential to have clear and well-defined assignment terms within the contract. Engaging a real estate attorney to review the assignment clause can help ensure its legality and enforceability. Additionally, conducting thorough due diligence on the assigned party and their financial capacity can reduce financial risks.

Q13: How does the presence or absence of an assignment clause affect the marketability and flexibility of a property in the real estate market?

A13: The presence or absence of an assignment clause can impact a property’s marketability and flexibility. Properties with more flexible assignment clauses might appeal to a broader range of potential buyers, including those who might consider an assignment. On the other hand, properties without an assignment clause might appeal to buyers seeking more control over the transaction. It’s essential for sellers to work with their real estate brokers to determine the right approach for their property, considering market demand and their own preferences.

Q14: How can real estate professionals, such as brokers and agents, help clients draft or negotiate assignment clauses to better protect their interests?

A14: Real estate professionals can collaborate with clients to draft or negotiate assignment clauses that protect their interests. They can ensure that the language is clear and specific, addressing the conditions under which assignments are allowed and any consent requirements. Brokers and agents can also help clients define any limitations, timeframes, or potential consequences related to assignments. The goal is to create an assignment clause that aligns with the client’s objectives and provides legal protection.

Q15: In the context of real estate investments, how does understanding and effectively using assignment clauses contribute to a more flexible and profitable investment strategy?

A15: For real estate investors, understanding and effectively using assignment clauses can enhance investment flexibility and profitability. Investors can use assignment clauses to capitalize on market opportunities by allowing the transfer of purchase agreements to other investors or entities. This flexibility can help investors quickly exit deals or capitalize on changing market conditions. However, it’s crucial to navigate assignment clauses with a clear understanding of the legal and financial implications to maximize profitability while minimizing risks.

Q16: What potential challenges or disputes might arise regarding assignment clauses in real estate transactions, and how can these be resolved or prevented?

A16: Challenges or disputes in real estate transactions related to assignment clauses can arise when one party wishes to assign the contract, and the other party disagrees or when the terms of the assignment are unclear. To prevent or resolve such issues, it’s crucial to have a well-drafted assignment clause that clearly outlines the process and conditions. Communication between all parties is essential to avoid misunderstandings. If disputes do occur, mediation or negotiation might be used to reach a resolution, and in some cases, legal action may be necessary. The best prevention, however, is to have a well-crafted contract that anticipates and addresses potential issues.

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A Guide to Pre-Construction Assignment Transactions

The process of “assigning” an interest in an agreement of purchase and sale is a relatively new concept in Waterloo Region and it is quickly gaining traction. The problem is that the average purchaser does not understand the intricacies of what is involved in order to successfully assign an interest in an Agreement with minimal tax implications. A further problem is that the form of the Assignment Agreement is quite complex. The purpose of this article is to break down an assignment transaction into a scenario that is frequently encountered by real estate lawyers and agents. 

In 2016, John (the “Assignor”) signs an Agreement of Purchase and Sale (the “Agreement”) to purchase a new condominium unit from Builder X (the “Builder”). He purchases this unit for $300,000.00 and, over the course of a year, he puts down a $45,000.00 deposit. The unit is scheduled to be completed in 2020. John predicts, that by the time the unit is built, it will be worth more than the $300,000.00 he originally paid. In 2019, John notices that the housing market in Waterloo Region is changing dramatically, that the Region has gained attention as a real estate hot spot and that John could stand to make a large profit if he sold his unit to a third party. Acting on these circumstances, John “assigns” his interest in the Agreement to Bob (the “Assignee”) for $380,000.00. In this process, Bob effectively steps into John’s shoes as the purchaser under the original Agreement with the Builder. 

John needs assistance to ensure that he assigns his unit properly. John, being a prudent purchaser, asks his real estate lawyer to review the original Agreement between John and Builder X to confirm whether the Agreement contains specific language which prohibits or restricts John from assigning the Agreement to Bob, and whether John can assign the Agreement without obtaining prior written consent from Builder X. Spoiler alert: most pre-construction agreements contain this prohibition. In fact, most pre-construction agreements will contain wording to the effect that consent may be “unreasonably and arbitrarily withheld” by the builder or consent may be “at the builder’s sole and unfettered discretion”. In the event that written consent is provided, the builder will likely collect a fee for authorizing the assignment, prohibit any subsequent assignments and insist that the original buyer remain on the hook until final closing if the Assignee, Bob in this case, fails to complete the transaction with the Builder.

It is fortunate that John engaged his real estate lawyer prior to finalizing his transaction with Bob. John has discovered that Builder X will charge John a fee of $5,000.00 to authorize the assignment.

John’s lawyer has also flagged another concern: John’s initial deposit AND his profit may be taxable by the Canada Revenue Agency (“CRA”). Let’s explore why John’s lawyer believes the assignment transaction is taxable. Whether an assignment is taxable or exempt from HST turns on the status of the Assignor as a “builder” for HST purposes. If the Assignor (in this case, John) is considered to be a “builder”, the Assignor will be required to collect and remit HST on the markup earned through the assignment (in this case, $80,000.00). Exactly how does the CRA make this determination? The CRA looks at intention. In investigating the Assignor’s intention, it is necessary to look at the Assignor’s circumstances at the time the original Agreement was signed. 

The CRA will look at several factors in determining John’s intentions. Here are a few:

• Is the Assignor a corporation?
• Does the Assignor take action to attract buyers while the property is under construction?
• How is the Assignor financing the purchase?
• Has the Assignor entered into multiple Agreements to purchase multiple units at around the same time?
• Is the Assignor’s stated intention to occupy the residence supported by his/her circumstances?
• Is the Assignor’s pattern of activity such that occupation of the property demonstrates that his/her use will not be permanent?
• Was the assignment triggered by an unforeseen and intervening event?

John’s lawyer determines that John’s primary purpose of purchasing the unit was to sell his interest in the unit to a third party.  John lives and works in Toronto and is married with 4 children. The condominium unit he agreed to purchase from Builder X is in the heart of Uptown Waterloo – a stunning 600 Sq Ft studio. While John did not construct the unit, for GST/HST purposes, he is considered to be a builder as he was “intending to sell the property or an interest in it or to lease the property”. John doesn’t see how he can alter his circumstances to support an alternative intention. John is second guessing whether he should proceed with this assignment transaction as his profit margin is quickly declining. 

Fortunately, John’s lawyer has a solution. John’s lawyer recommends to John that the assignment agreement should be worded such that HST is “in addition to” the assignment price as the transaction is subject to HST. John’s lawyer also adds a clause into Schedule “A” of the assignment agreement to confirm John’s intent to sell or lease the property. John is happy again.

Let’s revisit our scenario and think about what we’ve just discovered. The initial deposit is $45,000.00. John wants Bob to reimburse him for the deposit paid to Builder X. John also wants $80,000.00 (the “Assignment Fee”) from Bob in exchange for Bob taking John’s place as purchaser under the Agreement with Builder X. The total consideration is therefore $125,000.00 and all of it (yes, all of it – not just the profit but the deposit as well) is subject to taxation. Now Bob is unhappy.

Bob is concerned about HST. Bob engages his own lawyer. Bob’s lawyer reconfirms the HST implications in relation to the Assignment Fee and informs Bob that the Assignment Fee does not reflect his total financial obligation as the Assignee. Bob is a player in two distinct transactions:

• Transaction #1 = Bob’s Assignment from John
• Transaction #2 = Bob’s Purchase with Builder X

Bob’s lawyer reminds Bob that by entering into an Assignment Agreement, he is stepping into the shoes of John as the purchaser. Bob is assuming the original purchaser’s financial obligations under the Agreement with Builder X, however, Bob has no opportunity to renegotiate any of the terms of the original Agreement. Bob’s lawyer wants to review the original Agreement, any amendments and notices to the Agreement and Builder X’s disclosure package. Bob’s lawyer brings the various closing adjustments to Bob’s attention. Bob will be on the hook for another $37,200.00 in adjustments to Builder X according to his lawyer’s estimations. 

That’s not all. Bob’s responsibility to pay Land Transfer Tax (“LTT”) is also increased. In addition to paying LTT on the original purchase price of $300,000.00, Bob will also have to pay LTT on the Assignment Fee under the Assignment Agreement. Now Bob is very unhappy.

Bob’s lawyer has a recommendation for Bob. He suggests that Bob take advantage of the HST New Housing Rebate (“New Housing Rebate”). Bob already knows about this rebate. Bob is aware that under most new construction agreements it is assumed that the purchaser qualifies for the rebate and therefore the purchase price is listed as inclusive of the rebate for marketing purposes. In doing so, the builder fronts the rebate as a credit to the purchaser and applies to CRA following closing in order to recover the rebate from CRA. What Bob does not know is that if he submits a rebate application after completing his purchase with Builder X (as opposed to in conjunction with the transaction with Builder X), he will be able to claim the rebate over the Assignment Fee as well. If the Assignee meets the qualifications of the New Housing Rebate, the Assignee can recover from CRA a rebate for up to $24,000.00.  Bob’s lawyer also tells him that only one New Housing Rebate application can be filed per dwelling. 

To qualify for the New Housing Rebate, the applicant must: 1. Intend to acquire the property as a primary place of residence; 2. the property must never have been occupied prior to title transfer; and 3. the applicant (or their relative) must occupy the property continuously for a minimum of one year.

Bob’s lawyer concludes that Bob would benefit from applying for the New Housing Rebate on his own following the completion of the purchase transaction. Bob would be eligible for a rebate of $22,243.35 on the original Agreement price of $300,000.00. However on $380,000.00, the Assignment price, Bob’s rebate would increase to the maximum amount available: $24,000.00. Bob will recover an additional $1,756.65 if he applies for the rebate on his own. Bob is happy again! 

As lawyers, it is important to ask our clients detailed questions prior to waiving a “lawyer review” condition in an agreement. Here is a list of questions a prudent lawyer would ask when presented with an assignment agreement:

• Has the Assignor provided the Assignee with the builder’s written consent to authorize the assignment agreement? 
• Have the parties determined who will be responsible to pay any assignment fees if such are due to the builder?
• Is the Assignor’s deposit with the builder in good standing? 
• If not, has the Assignor made arrangements to bring the deposit into good standing including any applicable NSF charges?
• Has the Assignor contracted with the builder for any upgrades to the property that have not yet been paid as of the date of entering into the Assignment Agreement?
• Is the Assignee permitted to contract for any additional upgrades with the builder?
• Does the Assignment Fee include the cost of the upgrades contracted for to date? 
• Does the Assignment Fee include the cost of any “incentives” offered by the builder to the Assignor under the original Agreement? Are these incentives transferrable to the Assignee?  
• Has the Assignee reviewed the disclosure statement and original Agreement? Has the Assignee noted the additional adjustments that may be payable to the builder upon final closing and is the Assignee aware that such adjustments are the Assignee’s responsibility?
• Has the Assignor provided the Assignee with all amendments, waivers and notices as provided by the Vendor?
• Has the Assignee ensured with its lender that the Assignee will qualify for financing to complete the transaction? 
• Has proof of the Assignee’s financing been provided to the Assignor and to the Vendor?
• Does the Assignee qualify for the New Housing Rebate?
• Has the Assignee obtained confirmation from the builder that the Assignee will be credited with the New Housing Rebate on the builder’s statement of adjustments if the Assignee qualifies for rebate? 
• Is it in the Assignee’s best interest to collect the New Housing Rebate through the purchase transaction?
• Have the parties agreed when the Assignment Fee will be paid by the Assignee to the Assignor? Will it be at completion of the purchase transaction or at the time the Assignment Agreement is accepted?

So, what happens to John, Bob and Builder X? After conferring with their respective lawyers and after serious negotiation, the parties agree as follows: Bob will purchase John’s interest in the unit for $380,000.00 + HST as further set out in Schedule “A” of the Assignment Agreement. John agrees to assume responsibility for HST on the deposit to be recovered ($45,000.00) from Bob. Bob agrees to remit HST on the $80,000.00 Assignment Fee. As Builder X has had little dealing with Bob to date, Builder X is happy to add the potential rebate amount ($22,243.35) back into the sale price of the unit ($300,000.00). Out of caution, Builder X’s consent to permit the assignment continues to hold John liable to complete the transaction in the event that Bob fails to do so. Bob completes both transactions and applies for the New Housing Rebate post-closing. 

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Assignment Sale

What is an assignment sale in ontario.

If you have purchased pre construction properties in Ontario, chances are you have come across the term “assignment sale”. So what exactly is an assignment sale?

An assignment sale is when the original purchaser of a pre-construction property assigns their original purchase agreement to another party before taking ownership of the unit. The new purchaser then takes on all the obligations of the original contract and completes the transaction with the builder.

Assignment sales are prevalent in new construction condo buildings. This is because many purchasers who buy pre-construction condos do so with the intention of flipping the unit for a profit before taking possession.

The Importance of an Assignment Clause in Pre Construction Condo Purchase

A purchase and agreement of a new construction property may include an assignment clause. This assignment clause gives the purchaser the right to assign their contract to another party, subject to the approval of the developer. An assignment fee and their lawyer’s legal fees are typically charged by the builder.

If you are planning to assign your pre-construction purchase, it is essential to have a real estate lawyer review the contract beforehand to make sure the important assignment agreement clause is included and that you understand all the terms and conditions. Assignment sales can be complex transactions with many different stakeholders involved.

Does Land Transfer Taxes Apply in Assignment Sales?

If you are the seller of the assignment, then you are not required to pay a land transfer tax. However, if you are the buyer of an assignment sale, you will be required to pay a land transfer tax on the assignment purchase price. Be sure to factor in these additional closing costs when considering an assignment sale.

HST on Profit

On April 7, 2022, the Government of Canada unveiled Budget 2022: A Plan to Grow Our Economy and Make Life More Affordable. As a result, GST will be added to all assignment sales of newly constructed properties as part of the government’s effort to curb housing speculation. These tax implications are important to take into consideration when contemplating an assignment sale.

As of  May 7, 2022, under the Excise Tax Act, every individual assignor of residential real estate would have to collect GST/HST on their assignment profit and remit it to the CRA. For example, if you originally purchased a pre-construction condo for $500,000 and assigned it for $700,000, you would be required to remit GST/HST ($23,008.96) on the profit to the CRA. For greater understanding, it is important that you consult a tax specialist.

Factors to Consider When Purchasing on Assignment

It is important to have a lawyer review the contract to ensure that the important clauses are included and that you understand all the terms and conditions before considering an assignment sale.

There are a number of closing costs associated with purchasing a pre-construction condo unit. These costs can include but are not limited to development levies, meter installation fees, real estate lawyer fees, and land transfer taxes. As part of the assignment agreement, these will all need to be paid by the new purchaser.

An assignment deal can be a great way to get into the real estate market. However, it is important to do your homework and understand all cost involves. If you have any questions, be sure to speak with a real estate lawyer.

Right to Lease During Occupancy

An interim occupancy period occurs when a purchaser takes possession of their new condo unit before the building has been officially registered. In return, the purchaser will pay the builder monthly occupancy fees which include the property tax, maintenance fees, and interest on the outstanding balance owed to the builder. These occupancy fees are payable until the project is registered and the title has been transferred to the purchaser.

If you are planning to purchase a pre-construction condo unit with the intention of renting it out, it is important to ensure that the contract includes a clause that allows for interim occupancy with the right to lease. This is typically only allowed with the permission of the developer and would be at their discretion. If you are planning on leasing the unit, it is important to make sure that you will be able to do so before signing a purchase and sale contract.

What are the Legal fees for an Assignment Sale?

If you are planning on selling your condo unit before taking occupancy, it is important to factor in the real estate lawyer fees associated with an assignment sale. These fees can range from $1000 plus disbursements and are typically paid by the seller. As an assignment is not a typical sales transaction, it is important to ensure that you have both a real estate lawyer and a real estate agent who is experienced in handling these types of transactions.

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Nothing is due until the closing day itself.  Disbursements and the lawyer fees are drawn from the closing proceeds (if selling) or from the down-payment cheque (if buying). Contact us for any questions or a detailed quote. 

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What You Need to Know About Assignment Sales

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What is an assignment sale? We get this question quite often from both investors and end-users when it comes to the Toronto condo market, especially with the dramatic rise in condo buildings and pre-construction sales. Assignment sales can be a great opportunity for everyone involved, from the seller to the buyer. But working with a seasoned real estate broker is one of the most important things you can do. An assignment sale isn’t a typical transaction and there are many things you need to know before moving forward.

What Does an Assignment Sale Mean?

An assignment is a sales transaction where the original buyer of a property (the “assignor”) allows another buyer (the “assignee”) to take over the buyer’s rights and obligations of the Agreement of Purchase and Sale, before the original buyer closes on the property (that is, where they take possession of the property). The assignee is the one who ultimately completes the deal with the seller. In other words, an assignment clause allows the buyer of a home to sell the place before they take possession of it. Although an assignment sale is possible for both home and condos, it’s much more popular among condo pre-construction buyers.

Why Would Someone Want to Sell Their Condo on Assignment?

With pre-construction condo purchases, the sale of suites typically takes place several years before the building is built. It’s a long time in between buying the suite and actually taking occupancy of it. And with this lag time comes life changes – a new job outside of the city or in a different province, a new family that’s expanding with children, etc. What worked for a particular buyer years ago may not be the current case at closing time.

Financial reasons is also another reason to sell on assignment. Perhaps the purchaser can no longer be able to close on the condo, or perhaps it’s an investor who bought pre-construction with no intention of closing on them, therefore using an assignment sale strategy to profit, based on quick appreciation in the area.

Often with pre-construction sales, there’s a long lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

How Do Assignment Sales Work?

We completed an assignment sale for a client at 87 Peter Street which was a new building that has occupied, but not registered yet. Our client purchased a 1-bedroom, 1-bathroom condo pre-construction for $320,000.00. He was looking to sell the unit on assignment and listed it at $525,000.00. We received an offer of $500,000 which the seller was comfortable accepting.

Typically, when assignment sales takes place, the seller is looking for a buyer who can provide him with a purchase deposit that equals what he had to put down – usually 20% of the original purchase price. After providing the seller with this sum, the deposit paid to the builder now becomes the new purchasers deposit. Any upside to the seller can be paid based on the negotiated terms – sometimes when the seller gets a mortgage for the condo, or even earlier – it’s all based on terms of the assignment deal.

Overall, assignments sales are not to be overlooked – there can be some fantastic opportunities to get into a highly desirable building that you may have missed out on or purchase a condo that you may otherwise not have had access to. But the importance of working with a realtor and lawyer who know the ins and outs of these deals is the key to making them work for you.

If you’re interested in learning more about Assignment Sale and some of the great opportunities currently available, simply fill out the form below – we’ll get in touch right away.

Assignment Agreements

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What is an Assignment?

When one party transfers their right on one property to another, it is known as an assignment. There are two types of assignment, legal and equitable. Contact us for Assignment Agreements.

If we look at a contract, one party (the assignor) can transfer their right under a contract to a third party (the assignee). The assignor does not need the other party’s consent in the contract as per the express terms and conditions of the contract.

While rights under a contract can be assigned, obligations under the contract cannot be transferred to a third party. Novation is the only method to transfer obligations.

What Are the Legal Implications of An Assignment?

As per the clauses outlined in the Law of Property Act 1925, legal or debt benefits can be assigned to another person. For a legal assignment, there are few requirements:

• Benefits under an agreement can be assigned
• Assignment should be absolute
• The rights under the debt to be assigned should be fully identifiable and whole and should not relate to any parts
• The assignor needs to sign the agreement, and the assignment should be in writing
• All parties to the assignment should receive notice of the assignment

What are Property Assignments?

Any legal sales transaction is an assignment where the assignor (original purchaser) of the property transfers their rights and obligations under the contract to the new assignee (purchaser). In simple terms, the new assignee pays a fee for purchasing the desired property.

The assignment is considered to take place from the original agreement of sale between the original purchaser and developer. The assignment happens before the property is completed.

The assignee assumes all the obligations and duties of the assignor. The original agreement of sale includes these duties and obligations such as included items, deposits, required disclosure statements, and completion date.

The assignee is granted title to the property once the property gets completed. All assignment fees are borne by the original purchaser and are charged by the developer.

The legal owner of the property is the developer till the transfer of title happens legally on completion of the property. For all assignment transactions, the developer needs to give written consent.

How can assignments from builders be done for Pre-Construction Condos?

Before project completion, many investors end up selling their builder agreement properties. The assignment is when the purchaser-investor’s interest in the builder agreement of purchase and sale is transferred to a new buyer or assignee.

Builder’s written consent is required before an assignment can take place by the purchaser-investor. Many builders can also withhold the assignment clause as per their agreement.

Whether you are moving into the property or purchasing a condo for investment, it is advisable to get the agreement reviewed by a real estate lawyer. You can understand your options and request an amendment to the agreement of purchase and sale to allow for future assignments.

Can an Assignment be done only for Pre-Construction Condos?

Any type of property can be assigned to a person, whether it is a resale or a pre-construction one. There should not be any restrictions against assignment in the original contract for the assignment to be possible.

How Can Consent from Builder be Received?

Builder’s requirements, process, and fees should be determined once the buyer confirms that they possess the right to assign the agreement as per the contract. If the agreement prohibits assignment and the builder refuses to allow them, the original buyer will have to wait to sell the property after closing. In many circumstances, the builder’s consent to agreement assignment can be obtained even if such consent was not present in the original contract. Many builders waive the assignment prohibiting clause from the agreement once builder specified criteria and forms with fees are followed.

The sales office can help in determining if the builder can provide consent and under what conditions. Different builders have a varying set of processes on the assignment of their properties.

What are the Salient Features of the Assignment Process?

• The buyer takes over the assignment agreement and pays the adjustments to the builder at the time of closing. New and original buyers may split the adjustments if that is decided as per the agreement
• Assignment fees are typically paid by the original buyer to the builder
• In the original contract, the buyer has paid deposits to the builder. Once the contract gets assigned to the new buyer, they also take over the deposits. In most cases, the original buyer gets their deposits back once the builder gives their signed consent to the assignment of property to the new buyer.
• The original buyer gains by the difference of funds at the time of final closing.
• The closing of the transaction is dependent on the construction level of the condo unit. The buyer can occupy the unit once the occupancy closing takes place. Once the occupancy closing is done, once the builder signs the consent to an assignment, the final closing date can be set.
• The new buyer is responsible for paying the occupancy fees from the date of the property being occupied.

What Are the HST Implications of The Purchase of A Newly Built Residential Property On Assignment From A Builder?

The purchase price on the Agreement of Purchase and Sale with the Builder is already inclusive of HST and an HST New Housing Rebate. However, there are some cases where the Builder will not credit the HST New Housing Rebate on closing as a result of an Assignment, despite the eligibility of the Assignee/Purchaser for the Rebate. If you are buying on Assignment and the Builder does not credit you the HST New Housing Rebate, you will need to pay the same to the Builder as an Adjustment on final closing.

To recover your HST New Housing Rebate, you will need to apply for the HST New Housing Rebate yourself after final closing with the Builder. To be eligible for the same, you will need to have acquired the property to move into the property and that you will have actually moved into the property after closing with the Builder. Please note that if the Assignor had used the property for rental purposes after taking possession on occupancy, it will affect your eligibility for the HST New Housing Rebate and it is important to ensure the Assignor has not done so.

If you are buying on Assignment for investment purposes, you will need to obtain an HST Rental Rebate by entering into a lease to a Tenant to move into the property for at least a one-year period and apply for the HST Rental Rebate within 2 years of your final closing.

You are advised to speak to a real estate lawyer about the HST Rebate applicable to your Assignment purchase.

How We Can Help

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Our Mississauga Real Estate Lawyers are available for a consultation. Come and experience the quality legal counsel and personalized care we give to each client. We ensure prompt communication and a professional approach to achieve successful outcomes for you. Contact us for Assignment Agreements.

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The Elements of an Ontario Real Estate Contract

Purchasing a home in Ontario comes with many critical considerations and decisions. When prospective purchasers or sellers decide to proceed with a real estate transaction, they must sign an agreement. However, it is vital for parties to understand what the real estate contract states regarding the terms of the agreement and what the consequences are if a party does not follow through on their responsibilities under the contract. With proper preparation and help from a skilled realtor and real estate lawyer early on in the process, you can ensure that the transaction goes as smoothly as possible.

This blog post will focus on explaining the core elements of a real estate contract in Ontario to help buyers and sellers understand what a standard real estate contract looks like and how the terms of these agreements impact their rights.

What is a Standard Contract in Ontario Real Estate?

Realtors will use Ontario Real Estate Association (OREA) Form 100 (Agreement of Purchase and Sale) for most real estate purchases in Ontario. This is a standard contract that is prepared by the buyer and presented to the seller as an offer to purchase the property in question.

The terms of the Agreement of Purchase and Sale may change through negotiation. However, the topics covered in the contract rarely vary.

Standard Clauses in Ontario Real Estate Contracts

The information below outlines some of the relevant clauses in an Ontario real estate contract and provides context for the key clauses that may interest an average buyer. Real estate contracts can vary based on the unique circumstances of the transaction and may differ from the terms set out below. If you have questions regarding an Agreement of Purchase and Sale or how a standard clause applies to your unique circumstances, it is important to obtain the advice of an experienced real estate lawyer .

Introductory Information

On every Ontario real estate contract, there are several pieces of essential information, including:

• the date the offer was made;
• the name (or names) of the buyer(s) and seller(s); and
• the address and legal description of the property that is the subject of the offer.

The Deposit

Typically, when a seller accepts an offer to purchase their property, the buyer provides the seller with a non-refundable deposit as a sign of commitment and good faith. While many buyers provide 5% of the property’s purchase price for the deposit, this number can vary based on buyer or seller preferences.

The Agreement of Purchase and Sale will include a clause outlining the deposit amount, the method of payment, and who will receive it. In many cases, the seller’s lawyer receives the deposit, which is held in trust until the transaction closes. The Agreement of Purchase and Sale will also outline how soon the buyer will pay the deposit once the seller accepts their offer. Generally, the buyer must transfer the deposit within 24 hours.

Irrevocability

Irrevocability refers to the circumstances under which the buyer can revoke their offer.

The Agreement of Purchase and Sale will include a clause outlining how long the seller has to consider and accept the buyer’s offer. During that time, the buyer cannot withdraw their offer. However, if the clause states that the offer is irrevocable until a specified date and the seller does not accept the offer by that date, the deposit will be returned to the buyer, and the offer will be null and void.

The Completion Date

The “completion date” is the date that the property will be legally transferred from the seller to the buyer.

The Agreement of Purchase and Sale will include a clause stating the date that the transaction will be completed and the buyer can take ownership of the property.

Fixtures and Chattels

At their most basic nature, “fixtures” and “chattels” are immovable and movable items relating to the property. For example, fixtures are items that are “fixed” to the property, like fences, while chattels are items that can be moved, like a fridge or a washing machine.

The Agreement of Purchase and Sale will include clauses addressing how specific fixtures and chattels will be dealt with. In other words, it will specify whether any items will stay with the property when the buyer takes ownership or whether the seller will remove them from the property. This section includes a clause for “Chattels Included” and “Fixtures Excluded.”

Dealing with fixtures and chattels can become complicated, especially when the parties are not clear about what will stay on the property after the sale closes. When in doubt, it is best to outline how these items will be treated in the contract to ensure there are no unpleasant surprises or disputes relating to them after the property is transferred.

Rental Items

“Rental items” refers to items on the property that are rented and not included in the purchase price. For example, a seller may lease a hot water heater at the property.

If applicable, the Agreement of Purchase and Sale will identify items or equipment that are not included in the purchase price and how they will be dealt with. For instance, the buyer may agree to assume the rental contract for the hot water heater, or it may be returned to the rental company.

Harmonized Sales Tax (HST)

In some cases, such as when a buyer purchases a new build home , a property purchase may be subject to HST.

The Agreement of Purchase and Sale will typically outline whether HST is payable, along with the amount of tax payable. If HST is payable, the amount of tax owing will be added to the Purchase Price, and if HST is not payable, the seller will typically certify that it is not payable on or before the completion date.

Contact Campbells LLP for Comprehensive Guidance on Buying and Selling Residential and Commercial Real Estate

Buying a new home can feel overwhelming, but with the right legal representation, it doesn’t have to be. At Campbells LLP , we guide buyers and sellers through every step of their residential real estate transaction. Our team will help you understand your options, walk you through relevant real estate contracts and documentation, negotiate terms on your behalf, and protect your interests if a dispute arises between the parties. To learn more about how we can help you with your next sale or purchase, contact us online or call (905) 828-2247 .

Campbells LLP in Oakville: A Small Firm Providing Big Service

At  Campbells LLP,  our team of exceptional Oakville lawyers provides practical, forthright legal advice and representation on everything from estate planning to complex litigation. Our goal is to provide the right solution for each and every one of our clients and to deliver the best possible outcome in every case. To learn more about how we can help you, contact us online or at  905-828-2247 . We look forward to speaking with you and going through this process by your side.

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OREA Standard Forms

OREA Standard Forms & Clauses help to facilitate almost every real estate transaction in Ontario. OREA Forms resources provide Members with the education and updates required to be successful in their business.

Based on Member feedback, OREA is in the process of updating select Standard Forms and Clauses, and adding several new ones, to ensure greater functionality for REALTORS® while maintaining regulatory compliance. Changes include:

• Elimination of “Limited Services Agreements”;
• Creation of Listing Agreements for both Brokerage Representation and Designated Representation;
• Elimination of Working with a REALTOR®;
• A new, user-friendly “Confirmation of Cooperation and Representation” – buyer/seller and landlord/tenant (updated version is now live on the website);
• Creation of Termination Clauses for Multiple Representation and changing Designated Representative;
• Creation of a Disclosure Form; and
• Creation of Multiple Representation Disclosure and Consent Forms for Leasing and Commercial Transactions.

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OREA State of Emergency Clauses

Q1. can the seller and buyer agree to terminate an agreement of purchase and sale they entered into even if covid-19 was not a factor.

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Q2. Was the ELEC-1 Electronic Signature Consent Clause revised because of COVID-19 situation?

Q3. as the listing brokerage representative, do i have to provide the seller the lockbox for key drop on closing, q4. is the state of emergency-4 video conferencing clause to allow a salesperson to video conference for identification and signing documents, q5. should i use the orea state of emergency clauses exactly as they are or can i revise them if the buyer or seller wants to negotiate something different, q6. can i send orea a clause that i or my brokerage created for covid-19 for orea review and approval, q7. in the event a closing cannot take place, without the inclusion of any orea state of emergency clauses, how would this situation be managed, q8. orea agreements of purchase and sale form deposits section references, deposit ‘by negotiable cheque’ will this be changed to include electronic transfer, q9. if i can't show the buyer a unit or they cannot complete an in person inspection, what clause should i add to the agreement of purchase and sale, q10. should there be a clause asking the seller to reveal any covid 19 personal or property issues prior to a buyer taking possession, q11. why would a member/realtor® ever want to allow termination of an agreement, q12. how can anyone know how many days that it would take for land registry to close a deal after re-opening, should this be something the buyer and or seller be agreeing to, q13. can one or all orea state of emergency standard clause(s) be inserted into an existing agreement pending completion, by way of an amendment, q14. are we adding something into agreements of purchase and sale for our salesperson protection during this emergency crisis, q15. what should i do if a buyer or seller lawyer does not agree with an orea clause and they have different opinion and clause to insert into an agreement, q16. my brokerage and other brokerages have established form(s) that are supposed to be used when i list or negotiate with buyers and sellers, should i send them into orea to approve before i use them, q17. beyond a lockbox, what device could exist for key drop to consider, q18. would the orea state of emergency clauses apply to tenancy agreements as well, q19. will the state of emergency clauses be deleted once covid-19 pandemic is resolved, cannabis legislation update, q1. how many cannabis plants can be grown under the new legislation, q2. how would a member know if legal cannabis growth property history will matter to their prospective buyer, q3. is the listing data sheet going to be revised to identify if the property has or has had cannabis activity, q4. can a listing brokerage force a buyer to accept their aps schedule b, containing a clause which reads “the seller does not provide cannabis representation or warranty”, q5. as a listing salesperson working with or for a seller, what provisions are needed in an agreement of purchase and sale regarding cannabis, q6. are there orea forms that could assist with determining if the property has cannabis growth history, q7. as a co-operating salesperson working with a buyer, what provisions are needed in an aps regarding cannabis, q8. as a listing salesperson is there anything i need to ask a seller regarding growth or use of cannabis, q9. when will orea have forms revised to address cannabis, q10. when will orea have forms revised to address cannabis, q11. can condominium rules/bylaws, board ban the selling of a condominium to someone who will grow or smoke cannabis, q12. can a landlord ban a tenant from growing and/or smoking cannabis after legalization date oct 17th, 2018, q13. with respect to legal cannabis activity what experts do i need to suggest to a buyer or seller to consult with before or within sale or lease negotiations, q14. will orea have a webinar on this cannabis topic, form #400 agreement to lease – residential update, q1. can the orea form #400 agreement to lease - residential be used by members after april 30th 2018, q2. what are the revisions to orea form #400 and/or to orea lease/res standard clauses due to rta amendments effective april 2018, q3. when must the new government required standard lease form be used, q4. where can the new government standard lease form be found, q5. will the government standard lease form be available on webforms, q6. can a term(s) be added to the orea form #400 schedule for landlord and tenant negotiations, even though it or they may also be found on the government standard lease form, q7. can a member attach the government standard lease form as a schedule/addendum to the form #400, within their negotiations, for landlord and tenant review and awareness of the standard lease document content, q8. will orea be creating any further clauses for optional use by members when using the form #400 agreement to lease – residential and negotiating with their consumers, q9. how does a brokerage collect brokerage service remuneration/commission with hst, q10. is the new government lease form mandatory for members to use, assignment aps, q1. is an assignment possible if the original agreement of purchase and sale is with a builder, q2. when is an assignment of a contract done, q3. shouldn't brokers of record play a bigger role in relation to information and guidance, q4. does the original purchase price include any upgrades paid separately, such as in a new home sale agreement between the buyer and the builder, q5. when is the balance of the assignment agreement paid by the assignee and when is the original deposit paid back to the assignor, q6. who pays the assignment fee from the builder or other related expenses, q7. are there orea standard clauses for assignment situations, q8. if the original seller makes another $100k over the original purchase price, does the real estate agent get more commission, q9. are there tax implications for any parties in an assignment situation, such as hst or capital gains tax., q10. does a clause in the schedule regarding the occupancy phase need to be included, q11. what happens to the original commission that was to be paid on closing, q12. who pays the land transfer tax, q13. what about house trailers in a park where the land is leased does the landowner have the right to know of a pending assignment, q14. what happens if the builder delays does the assignee have the same choices, q15. can the assignee and assignor use the same lawyer, q16. should one be concerned when the assignment is to a corporation i.e. limited liability, q17. once the assignment has been executed and completed and deposits have been paid, is the original buyer free and clear of all liability, q18. does the assignor need the service of a lawyer, q19. can the assignee pay deposit monies and balance monies when the assignment agreement is closed (original assignment closing date), form #801 offer summary document, q1. is form #801 needed for an offer to lease residential, q2. why doesn’t the seller sign a form #801, q3. what happens in a multiple offer scenario, q4. how does the buyer do a counter offer and not see the seller info, q5. if this document is for the listing brokerage side to satisfy the legislation, why are so many buyer brokers so adamant about having a signed copy returned, q6. what if the listing is offering limited service to the seller, does the seller’s brokerage have to retain a copy of each offer or a copy of form #801, q7. can a listing brokerage fill this out for all offers submitted to their office, q8. so many listings state “form 801 must accompany all offers.” if there is only one offer, why are they insisting on this form, q9. is a listing agent required to disclose how many offers were received to non-participants if the offer’s registered, q10. must each sign back have a new form, q11. what if my client doesn’t want to provide his name etc. prior to the listing being presented would it not suffice that i send an e-mail saying i have the offer, and provide form #801 if and when there are multiple offers, q12. if the buyer’s agent asks how many offers were received and requests copies of all the form #801s, should the listing agent send them to the buyer’s agent, or does the buyer’s agent have to send a request to reco, q13. if the buyer has not signed form #801, can it be used as the summary record, q14. can a listing brokerage demand a form #801 from a brokerage working with a buyer submitting an offer, q15. does the listing brokerage have to disclose all offers to all registrants, q16. can office policy mandate the use of form #801, q17. if the listing brokerage asks for form #801 and the buyer brokerage fills it in, and then if a counter offer is submitted by both the seller and buyer, respectively, who has to fill in and sign form #801, q18. what is the purpose of having the seller’s contact information, q19. why is form #801 one-sided why is one not created when offers are presented by the seller, q20. if sign backs are considered new offers, and form #801 is one way, what form does the listing representative use when signing back, q21. what if the original and counters offers were done on the same copy do you need to photocopy the offer between counters, q22. does one copy of the offer, with all changes made, meet the requirement, q23. there isn’t enough room to write in all of the sign backs. form #801 only allows for one counter offer. if the offer goes back and forth more than two times, where do we write in the additional sign backs, q24. can a sales person say that they do not have an offer but have been advised that one is being prepared, q25. if i have a listing that only gets one offer and it’s accepted then technically i have a copy of the offer on file. do i still need a form 801, q26. if you are the listing agent and you have a signed offer from a buyer client, is form #801 sufficient or do you need both form #801 as well as copies of every offer and counter offer, q27. what if the co-operating salesperson refuses to submit the form, q28. if reco is contacting the listing brokerage to follow up on complaints then why is the seller’s contact information required on form #801, q29. are inquiries anonymous or transparent, q30. what recourse does a buyer agent have if it’s revealed that the number of actual offers doesn’t match what is in a brokerage file, q31. how are you guaranteed that your offer has been presented, q32. why does the buyer’s representative need access to the seller’s e-mail address, phone number etc., q33. why could you not use form #109 instead of 801, q34. how long has this form been in effect, q35. how many offers do you count if you have an offer with 4 renditions, q36. i am an owner of a small brokerage. when we receive offer(s), can we just keep these copies of the offers as opposed to form #801, q37. how can we ask the listing agent to have the seller sign or acknowledge form #801, q38. is a counter offer from the seller not considered an offer, q39. if the offer is accepted do you have to keep all the copies, q40. after form #801 is completed by the seller's rep does the buyer's rep need a copy of the form, q41. what if the buyer broker refuses to submit the form, q42. if an offer is not accepted by the seller, does the buyer’s rep need to keep a copy of form #801 or is the rejected offer sufficient, q43. can i provide my own e-mail address in the seller’s contact information section, q44. what happens if the seller does not want their contact info to be included on the form, q45. under the legislation can a salesperson say to a buyer’s broker that they do not have an offer in hand yet but have been advised that one is being prepared, q46. if you are presenting an offer at a home with no access to a photocopier/scanner how can a brokerage for a seller keep a copy of the offer received, q47. i was told that if you double end your own listing you need both form #801 and a full copy of ever offer/counter offer. is this correct, q48. can a buyer request that there be no record of their unaccepted offer, stickhandling offers, q1. does there need to be a trust deposit disclosure in an offer (usually in a schedule b), q2. if you put the client’s “what if an offer comes earlier” direction in writing in regards to pre-emptive offers and a pre-emptive offer comes forward, is it true you don't have to call all the other buyers, as long as this is stated in the listing, q3. do we keep the fact of a pre-emptive offer from our sellers, q4. what do you do if the pre-emptive offer expires before the published offer date, q5. do we withhold the fact that someone has brought in a pre-emptive offer until the written presentation date and time, q6. please clarify the obligation to inform others if one of the multiple offers is from the listing brokerage buyer client. should i do this every time or only if there is a benefit to the seller (financial or other), q7. if there is an illegible agreement of purchase and sale and i am redoing an offer, which date should be used - the date on the original agreement of purchase and sale or the date when the newly created offer is signed, q8. if there is only one offer do we need to use form #801, q9. when presenting an offer in multiple offer situations, whose property is the offer does the co-operating salesperson have to leave his offer open and/or on the table with the seller i have a seller that is taking their full time considering an offer from a buyer, but i am concerned regarding my buyer client’s privacy and about the listing brokerage shopping the offer to the competing offers., q10. does the listing salesperson have to disclose that they have received any offers in the past that were not accepted, q11. can a buyer still retract their offer if the co-operating salesperson delivers a form #801 to provide proof of an offer to the listing salesperson/brokerage, q12. how does form #801 play into disclosing to the listing salesperson offer details such as irrevocability and buyer’s name does it mean the listing office can't disclose any offer details to any other party, q13. if you are the listing salesperson and you have an offer on "sign-back" (from a seller to the buyer) do you have to advise the "sign-back" offer buyer/co-operating agent if you receive another offer in the meantime especially, considering that the second offer could be higher than the sign-back offer, q14. can you refuse someone from entering an open house if they refuse to sign the open house registration, q15. the trend today seems to be that homes are listed a bit under market value to attract a bidding war and top dollar for the sellers. a seller asked me the other day "but what if we list under market value and only get one offer and at asking price" can the seller refuse to accept an offer presented at full price, q16. what is the best form to disclose to a client particulars and or brokerage/salesperson agreement of a collateral agreement, q17. i am concerned regarding a brokerage shopping an offer to the competing salesperson and offers. a listing salesperson specifically approached me and said the other salesperson was calling his client to change his offer. he then asked me if i would change mine., q18. when a firm offer is presented and accepted, could the buyers still be able to do an inspection for their own purposes could the seller or sellers’ agent discourage the inspection after the firm offer has been accepted, using e-signatures with integrity, q1. which electronic software is best to use, q2. is there an e-signature consent form, q3. is there a standard e-signature clause in the pre-set section of the agreement of purchase and sale or listing agreement, q4. should an e-signature clause be inserted in an agreement of purchase and sale, q5. if the e-signature software includes a consent page prior to opening or signing the document does that cover getting consent or does a clause also need to be used in the agreement, q6. is a witness signature required with electronic signatures, q7. can software such as adobe acrobat be used to obtain e-signatures along with a clause in the agreement or is it mandatory to use a document signing service, q8. are varied font electronic signatures, created by the electronic signature software providers, acceptable, q9. are the licenced third party providers found on the orea website the only companies that are acceptable to use for e-signatures, q10. are there any hands on courses available to learn how to use electronic signatures, q11. i am not certain if my brokerage has an e-signature use policy, can i go ahead and use e-signature software if they do not have a policy, q12. is it acceptable to use a tablet for electronic signature for an agreement of purchase and sale, q13. if the e-signature software embeds the date/time along with the signature on the signature line of an orea form, does that mean that the "date field" on the orea form can be left blank, q14. how can a paper trail be followed if emails are not used to obtain signatures, q15. are lenders or lawyers balking at e-signed documents, q16. can another brokerage sales representative make it mandatory for my clients to use electronic signatures in an offer.

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An Agreement of Purchase and Sale is the primary document governing property transfers between a buyer and seller. In Ontario, the Ontario Real Estate Association (“OREA”) form is the standard, which serves as a comprehensive template, ensuring consistency and clarity in contractual agreements between buyers and sellers and between real estate professionals and their clients. This blog will discuss issues common to residential property buyers and sellers in drafting an Agreement of Purchase and Sale using an OREA form.

Transactional Issues for the Buyer

The buyer must consider the following factors before purchasing a property, whether they are planning to purchase the property on their own or with other parties.

Multiple Parties on Title

Although the transaction may only include an individual seller to a buyer, the title to the property can be taken by multiple parties. The buyer can do so with a written “title direction,” which authorizes the seller to prepare the transfer in two names. This can be achieved if the direction is signed by the buyer and the other party or by assignment, where the buyer formally assigns and sells the agreement to a legal entity that is not an original party (as is typical when flipping a property). However, this must be cautiously permitted as it may result in a fraudulent transaction.

Multiple Buyers

Unique issues can arise when multiple parties are purchasing a property. The buyers would need to register as “joint tenants” or as “tenants in common,” the difference being in the manner of ownership. When buyers register as “joint tenants,” they legally share equal property ownership. In the event of one owner’s death, the property automatically passes to the surviving joint tenant(s). In contrast, when registering as “tenants in common,” each owner holds a distinct share of the property. In this scenario, these individual shares can be of equal or unequal proportions. In the unfortunate event of an owner’s death, their share does not automatically transfer to the surviving owner(s).

The issues arising from either ownership type can be mitigated by a co-ownership agreement, ideally before closing. In addition to the agreement of purchase and sale, this agreement can govern the relationship between each owner to avoid disputes.

Trustees and Agents

A buyer may offer to purchase a property in trust or on behalf of a corporation. In such a case, the buyer would likely want the option to assign the agreement to the corporation before closing. Although this is possible, the buyer should be wary of their continued liability. If, for some reason, the trust or new corporation defaults on the agreement during closing, the buyer could be liable for any resulting damages. Therefore, if the buyer intends to purchase a property on behalf of another entity, the liability obligations in the OREA form should be consulted or negotiated heavily.

Transactional Issues for the Seller

A property seller also has unique considerations, depending on the circumstances of the transaction.

Identification of Sellers

Correctly and diligently including all the property sellers in the agreement is crucial to effecting the transaction. If the property is owned by more than one individual or entity, all registered owners must be party to the agreement of purchase and sale. Suppose a registered owner is not identified as a seller and does not sign the agreement. In that case, the buyer may not have any rights or remedies against them, leaving the identified seller as the only party liable if the transaction goes poorly. Sellers should ensure that all registered owners are listed, and if not, an amendment to the agreement is proposed before closing to add such parties.

Sale of Estate Property

There are special considerations when a property is sold as part of a deceased’s estate. Specifically, the estate trustees must ensure that they are correctly appointed. Only then can they affect a property transfer on behalf of an estate, and only if all trustees sign the agreement. If trustees still need to be appointed, the transaction can be made conditional upon such appointment.

Seller Not Registered Owner

There are instances where the property is sold by a party other than the registered owner, such as the sheriff, to satisfy a debt or by power of sale. It may be the case that the registered owner may prevent that property sale by making payments to the sheriff or mortgagee, in which case the buyer may be precluded from enforcing the sale. Therefore, in these situations, the rights and responsibilities of the seller should be carefully examined or modified in the agreement.

Matrimonial Home

Matrimonial homes have a special status in Ontario. As stated in the Family Law Act , selling a matrimonial home requires the spouse ‘s consent. To adhere to this legal requirement when selling a property, the unregistered spouse must sign the agreement despite any lack of a formal title. Failing to secure their signature may result in an inability to compel their consent during the final transfer, potentially impeding the seller’s ability to complete the transaction.

Contact Mississauga Real Estate Lawyers at Bader Law for Commercial and Residential Real Estate Advice

Bader Law  represents individual and corporate buyers in  real estate  transactions in Mississauga and throughout the Greater Toronto Area. Our experienced  real estate lawyers  take strategic action to help clients navigate the uncertainties involved in various real estate transactions. From reviewing an Agreement of Purchase and Sale to resolving title insurance matters, our team is ready to help. At Bader Law   we ensure your real estate matters are tended to in a timely and professional manner. To schedule a consultation with one of our team members, contact us  online  or call our office at 289-652-9092 .

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Assignment Sales and “Shadow Flipping”: An Ontario Perspective

GREATER TORONTO – While it has certainly garnered its share of media attention in Greater Vancouver, the practice now known as “shadow flipping” has yet to become a serious problem here in the GTA, according to the Real Estate Council of Ontario (RECO).

In a nutshell, a real estate sales representative or broker may engage in shadow flipping by arranging the sale of a property, and then selling the contract to purchase the home via assignment before it closes.

As a recent Globe and Mail investigation uncovered, there have been instances in British Columbia of a property deal being assigned two, three, or even more times before it winds up in the hands of the final “assignee.” However, the contrast between the offer price originally accepted by the sellers, and the price paid by the final buyer, has the potential to be dramatic — hundreds of thousands of dollars, in many cases.

That difference in the final purchase price has led some British Columbia sellers to believe they may not have gotten the best possible price from the negotiations of their original listing agent(s) – who, in some cases, also represented subsequent assignment buyers for the exact same properties.

In the GTA’s comparably hot real estate market, it has also led many would-be sellers to ask two related questions: are they susceptible to this practice, and what protections are in place to prevent it?

Are assignments controversial?

Here in Ontario, the answer is no – assignments are completely legal, and have yet to become controversial.  In fact, assignments (or the sale of a contract) are used in many industries, not just real estate.

In more standard practises, and in particular in Ontario, the assignment of a contract requires the consent of all the original parties to the contract and this would be spelled out in the language and body of the contract.

While the Globe ’s feature reports that assignment deals may be viewed as “controversial” in that province (hence the sinister-sounding moniker of ‘Shadow-Flipping’), RECO notes that such is not the case in ours, where the majority of assigned property deals involve new-development homes (as opposed to existing re-sale ones).

In the case of Ontario’s new-development home assignments, the practise is fully disclosed, and all parties are aware of the rights of the Buyer to assign the contract.  In fact, assignment rights are often openly negotiated as part of the initial purchase and sale!

In Ontario, as in British Columbia, it is legal to assign an Agreement of Purchase and Sale (the official contract outlining the terms of a property sale). In many situations, this provides a helpful tool for buyers who must back out of a transaction due to a change in personal circumstances.

While sales may theoretically be assigned for any type of property, it can be either forbidden – or explicitly allowed – by the addition of clauses in the original purchase agreement.

For sellers who are wary of their property being resold via assignment, it is important (and, indeed, encouraged by RECO) to look carefully at any and all clauses – including assignment or non-assignment clauses before signing. It is the duty of your real estate representative to help you interpret and understand those clauses, so don’t be afraid to ask.

Because contract assignments have as much to do with contractual law, as they do with real estate, it is also strongly advisable to consult a lawyer for more information regarding them.

What measures are in place to prevent Ontario sales representatives from misusing an assignment clause?

Since “shadow flipping” involves a seller’s sales representative failing to disclose the true value of a property, or concealing their knowledge of additional buyers beyond the first, this practice runs afoul of the Code of Ethics found within the Real Estate Business and Brokers Act (2002) – an important piece of legislation that is strictly enforced by RECO. In addition to disclosures of real market value, the Code also legally obligates agents to disclose any personal interest in the property — in writing, and before offers are made.

In Ontario, real estate sales representatives are also obligated by law to observe five fiduciary duties when dealing with clients. Several of those duties are in place to help prevent ethically questionable practices (such as shadow flipping) from taking place:

• Maintaining the “ utmost loyalty ” to your client – including, in the case of sellers, ensuring that they get the best price for their property.
• Avoiding conflicts of interest , especially where the agent’s own interests are concerned (e.g. acquiring property from your own client.)
• Avoiding the acquisition of “secret profit” at the client’s expense. This would include any profits knowingly earned via “shadow flipping” — making the practice a direct violation of fiduciary duties in this province.

How can home buyers avoid assignment-related complications?

Since the initial burst of media attention focusing on shadow flipping in Vancouver, RECO has offered up a number of tips for Ontario sellers to protect themselves from such practices:

• Make sure you take the time to personally review each clause within your real estate contract. If you don’t understand some of the language, you can check with your real estate sales representative (or, if peace of mind is important to you, a real estate lawyer).
• Do your “homework” before signing a Seller’s (or Buyer’s) Representation Agreement. When considering any agent, finding the answers to key questions early — for example, can they provide testimonials from previous clients? — can save you a lot of trouble later on.
• RECO also recommends obtaining several “comparative market analyses” to get an idea of what homes in your neighbourhood are worth, before making the move to list and sell.

What recourse is available, in Ontario, for those affected by “shadow flipping”?

As Assignments are not illegal, there is no ‘recourse’ unless the aggrieved party feels that their agent failed in their duty to fully represent them and get them the best possible price, at the time of the initial sale. This includes scenarios wherein a seller’s agent has possibly made efforts to conceal the true value of a property.

In Ontario, RECO is responsible for investigating any possible breaches of REBBA 2002, including the Code of Ethics and fiduciary duties to clients. When you file a complaint with RECO , it is also a part of the Council’s job to look it over, and determine whether any breach did in fact occur.

Due in part to the recent news out of British Columbia, RECO is currently on high alert for instances of shadow-flipping, and are actively encouraging affected buyers and sellers to come forward.  However, as mentioned above, it is widely understood that this practise is not common place in Ontario.

“If there is a concern of any type from the seller’s perspective, we are more than interested in hearing about that,” said RECO’s Deputy Registrar Kelvin Kucey in an interview with BNN. “We will pursue that as an investigator.”

PLEASE NOTE: The above feature is meant to be used only as an introductory overview, and must not be regarded as legal advice or a substitute thereof. Because laws and regulations can be applied differently to different situations, it is important to speak with your lawyer if you suspect you have been affected by “shadow-flipping,” or if you want details on how to protect yourself, specifically, from complications related to assignment sales.

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Tax implications on assignment of a purchase contract

With the extreme financial uncertainty created by COVID-19, residential homebuilders and buyers are seeing an uptick with incomplete purchase contracts. Buyers are adding clauses that allow them to postpone closings or back out of them entirely. Others are assigning their purchase contracts to new buyers (informally known as "flipping the contract") regularly without careful examination of the tax implications.

To bring some clarity to the tax implications on the assignment of a purchase contract, we will discuss the key income tax, GST/HST, and CRA audit considerations for both contracting parties. Before we get started, let's review the role of the three parties involved in this type of transaction: the assignor, the assignee, and the builder.

Assignment of a purchase contract defined

At its core, an assignment of a purchase contract occurs when an original buyer of a new home, condominium unit, or a single purpose dwelling, allows someone else (i.e., an assignee) to take over the purchase contract. With permission from the builder, the assignee assumes the liability for purchasing that piece of property. Assigning a contract allows the original buyer (i.e., the assignor) to sell their interest in that property before taking possession of it and potentially making a profit.

Income tax implications for the assignor

With an assignment sale, the assignor must report any profit realized from an assignment sale in the tax year in which the right is assigned. The profit will either be treated as fully taxable business income, which is fully taxable, or income from a capital gain, only 50% of which is taxable.

Many taxpayers assume that any profit related to the sale of real estate will be regarded as income from capital gains. However, it is not the nature of the property that determines whether the profit is treated as business income or income from capital gains. Instead, it is the intention of the buyer at the time of the purchase of the property. If the buyer intends to resell it for a profit, the income realized on the sale of the property is business income. Capital gains treatment generally occurs where the acquired property was held for some time and used personally or to generate revenue.

The CRA generally considers that any profit on an assignment sale is business income because the entire transaction typically lasts for a short period and is undertaken with the intention to make a quick profit.

Furthermore, where taxpayers purchase a pre-construction property intending to live in it as a principal residence, the profit will not qualify for the principal residence exemption where there is an assignment sale. This is because the rights to the property would typically have been sold prior to closing. The property was not inhabited as a principal residence and therefore cannot qualify for the principal residence exemption. Thus, any profit would be taxable and treated as business income.

Tax implications for assignors who are non-residents of Canada

When a non-resident of Canada sells Canadian real estate or an option to acquire Canadian real estate, there is a requirement to notify the CRA of such transactions within ten days. Failure to inform the CRA can result in a penalty of up to $2,500 (additional penalties may also be applicable in certain provinces). Furthermore, the purchaser may be liable to withhold 25% of the gross proceeds and remit this to the federal authorities.

GST/HST implications for the assignor

Determining whether the assignor's proceeds are subject to GST/HST is subject to review by the CRA. The issue is whether the assignor meets the definition of a "builder" for GST/HST purposes and whether the assignor intended to purchase the property for business purposes. In many cases, the assignor of the property may be deemed to be a builder under the Excise Tax Act.

If the assignor can demonstrate to the CRA that their intention when they put in the offer to buy the property was to use it as a primary place of residence, then when they assign the contract, they will be exempt from paying GST/HST on the consideration received for the assignment of the contract. If, on the other hand, they entered the contract with the intention of leasing or reselling the property at a profit, then they will be required to collect and remit tax on the total amount charged to the assignee, which includes any mark-up earned through the assignment.

GST/HST implications for the assignee

Under most new construction agreements, the assignor will qualify for the GST/HST New Residential Housing Rebate, which is typically included in the purchase price, as long as the assignor intends to use the home as a place of residence. However, once the purchase contract is assigned, that eligibility is forfeited because the assignor is no longer taking title to the home on closing. It is also worth noting that there can only be one New Residential Housing Rebate application filed per dwelling.

Therefore, it will be incumbent upon the assignee to determine whether the New Residential Housing Rebate opportunity still exists. They will need to meet the stipulated legislated requirements, and they may have to apply directly to the CRA or arrange with the builder to have the rebate amount credited at closing. It is advisable that the assignee provide a declaration to the builder that they meet the requirements for the rebate (i.e., they will use the property as a place of residence) and obtain a commitment in writing from the builder that the New Residential Housing Rebate will be credited to them upon closing.

The builder should ascertain what the buyer's property intentions are before closing because having a New Residential Housing Rebate assigned by a buyer who intends to rent the property will have many potential negative consequences for all parties. The assignee may be eligible to apply for the New Residential Rental Housing Rebate directly with the CRA, where the assignee intends to purchase the property for long-term rental as a place of residence. In addition, the amount due on closing under the original purchase contract may need to increase since the new purchaser cannot assign the New Residential Housing Rebate to the builder.

Recent CRA audit activity

The CRA has increased its compliance efforts in the real estate sector , particularly in areas where speculative activity has increased.

The recent 2019 Federal Budget announced that CRA would be devoting significant resources to pursue and investigate real estate transactions as the government feels that this is a substantial area of non-compliance.

This means that if you are involved in a pre-construction assignment sale, the likelihood that you will be subject to CRA scrutiny will be high, so taxpayers must understand the rules for both income tax and GST/HST relating to assignment sales.

If your return is selected for audit, the CRA will consider the following factors when determining whether you correctly reported a real estate sale:

• The type of property sold
• How long you owned it
• Your history of selling similar properties
• Whether you did any work on the property
• Why you sold the property
• Your intention in buying the property

If you are a professional contractor or renovator, a speculator or middle investor, or an individual renovator, the CRA will be paying close attention to your property sales.

How BDO can help

Are you concerned about how to close your real estate transaction during self-isolation? Do you need help calculating the GST/HST on a newly constructed property? Talk with your BDO advisor today for all your real estate and construction needs.

Jameson Bouffard , Partner, National Real Estate and Construction Leader

Linda McCracken , Senior Manager, Indirect Tax

The information in this publication is current as of June 22, 2020.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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“Agreement of Purchase and Sale” (Title)

The agreement between the parties concerning “title” to the property is in essence the “bargain” between the seller and the buyer. This is a matter of substance and not just procedural as is the title search clause. It is also the clause which gives rise to the greatest amount of litigation between the parties. Let’s have a look at the standard form agreement of purchase and sale and see what it says in the “Title” clause: “10. TITLE: Provided that the title to the property is good and free from all registered restrictions, charges, liens, and encumbrances except as otherwise specifically provided in this Agreement and save and except for (a) any registered restrictions or covenants that run with the land providing that such are complied with; (b) any registered municipal agreements and registered agreements with publicly regulated utilities providing such have been complied with, or security has been posted to ensure compliance and completion, as evidenced by a letter from the relevant municipality or regulated utility; (c) any minor easements for the supply of domestic utility or telephone services to the property or adjacent properties; and (d) any easements for drainage, storm or sanitary sewers, public utility lines, telephone lines, cable television lines or other services which do not materially affect the use of the property. If within the specified times referred to in paragraph 8 any valid objection to title or to any outstanding work order or deficiency notice, or to the fact the said present use may not lawfully be continued, or that the principal building may not be insured against risk of fire is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee, (with all related costs at the expense of the Seller), and which Buyer will not waive, this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, shall be at an end and all monies paid shall be returned without interest or deduction and Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages. Save as to any valid objection so made by such day and except for any objection going to the root of the title, Buyer shall be conclusively deemed to have accepted Seller’s title to the property.” Now that was a real mouthful! Do you have any idea what you just read? Probably not! This is a paragraph that needs to be read, re-read and then read once again, before you will have any idea what kind of statements are being made. We will have to review it line by line, and due to the fact that it contains so much information, I will identify each line, thought, or partial sentence by a letter of the alphabet for later review. A) 10. TITLE: Provided that the title to the property is good and B) free from all registered restrictions, charges, liens, and encumbrances C) except as otherwise specifically provided in this Agreement and D) save and except for E) (a) any registered restrictions or covenants that run with the land providing that such are complied with; F) (b) any registered municipal agreements and registered agreements with publicly regulated utilities providing such have been complied with, or security has been posted to ensure compliance and completion, as evidenced by a letter from the relevant municipality or regulated utility; G) (c) any minor easements for the supply of domestic utility or telephone services to the property or adjacent properties; and H) (d) any easements for drainage, storm or sanitary sewers, public utility lines, telephone lines, cable television lines or other services which do not materially affect the use of the property. I) If within the specified times referred to in paragraph 8 any valid objection J) to title or K) to any outstanding work order or deficiency notice, or L) to the fact the said present use may not lawfully be continued, or M) that the principal building may not be insured against risk of fire N) is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance O) save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee, P) (with all related costs at the expense of the Seller), Q) and which Buyer will not waive, R) this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, S) shall be at an end and T) all monies paid shall be returned without interest or deduction and U) Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages. V) Save as to any valid objection so made by such day and W) except for any objection going to the root of the title, X) Buyer shall be conclusively deemed to have accepted Seller’s title to the property. So, that was the paragraph broken into its component parts. Now, in order to understand it, we will have to review each item separately. A) 10. TITLE: Provided that the title to the property is good and What does this sentence mean? First, the use of the term “provided” means that the matter is elevated to the status of a condition. You might recall that in a contract, terms may be: • Conditions • Representations, or • Warranties The elementary, basic concept is that the bargain is for “good title”. In fact, “good title” is made a condition of the transaction. Without good title, the transaction will fail. The concept of “good title” is a term of art. It has a long history and there are numerous legal decisions interpreting its meaning. There are two basic elements of good title: • Chain of title • Extent of title The chain of title falls within the purview of the lawyer or legal conveyancer. It deals with ownership and the proper transfer of ownership or “title” from “A” to “B”. The extent of title falls to the surveyor who can plot on a particular parcel of land, the exact location of the property subject to the agreement. There may be some apparent impediments. Such would qualify any opinion on the extent of title. In that sense, the extent of title is physical in nature, while the chain of title arises out of a legal registration system. At one time, the bargain in an agreement was for “good title”. Not anymore! Have a look at the exceptions and the qualifications in this paragraph? The concept of “good title” in law is simple. There are no qualifications, explanations, exceptions, conditions, impediments or arrangements. The title is simply “good”, and that’s the end of it. Courts later added the expression “marketable” meaning that the title was one which could be forced upon an unwilling purchaser. However, you will see that provision is not included in this standard form, nor in fact, do most owners have a title which technically qualifies as “good title”. Some do, most don’t. B) free from all registered restrictions, charges, liens, and encumbrances So far, so good! In line A), you bargained for “good title” and in line B) you are not accepting: • Registered restrictions • Charges • Liens, and • encumbrances To quickly summarize those concepts, registered restrictions means building restrictions, building covenants, restrictive covenants and the like which run with the land. They were the forerunners of municipal zoning by-laws. They are sometimes referred to as private deed restrictions. Charges are voluntary agreements to provide the property as security for a debt or promissory note. In the Registry system they are called mortgages and in the land titles system they are called charges. Subsequent to the passage of the Land Registration Reform Act , the document is called Charge/Mortgage under both systems. Liens however are like involuntary charges. A third party with certain rights files the claim. Executions, taxes, and construction liens can all be registered against the title to the property. Encumbrances are really like title defects of some sort. They are qualifications or explanations concerning title. An easement for example is an encumbrance. C) except as otherwise specifically provided in this Agreement and Now, we come to the exceptions, and the first one is a reference to another part of the agreement. So, if there are separate and distinct obligations with respect to title elsewhere in the agreement, then those other provisions prevail. D) save and except for This is the commencement of the list of exceptions. The following exceptions apply no matter what. They are part of the standard form. This is “the” bargain between the parties, whether you like it or not, or whether you think this should be the case. There is no need to speculate here. This is the list of exceptions. If you don’t like them, then change them. There is no point complaining or being surprised about them being here. They are here, and that’s it. E) (a) any registered restrictions or covenants that run with the land providing that such are complied with; This is the first exception. The buyer agrees to accept registered restrictions and covenants that run with the land. It doesn’t really matter what they are, or even whether the buyer knows about them, or doesn’t know about them. Whatever they are, they must be accepted by the buyer. Let’s assume that there is a building restriction. The covenant says no house may be greater than 2,500 square feet. The present building is 1,800 square feet of inexpensive construction about 35 years old. The property as it stands complies. However, the new buyer just put in an Offer at $900,000 for the property. It’s one half an acre in a fashionable part of the city. The municipal by laws, will restrict the size to 15,000 square feet. The new buyer wants to build 5,000 square feet. So, what happens? Unfortunately, the new buyer is stuck. A deal is a deal. The bargain was for good title subject to a building restriction that was in compliance. The only remedy is to close the transaction and sue someone. Likely, this will include the buyer’s lawyer and real estate agent. It’s possible but unlikely that the seller’s agent was involved in any misrepresentation. What went wrong? It doesn’t even matter whether the title search took place in time. This restriction is accepted as part of the transaction, it cannot be requisitioned. The time to deal with this issue was at the time of the Offer. F) (b) any registered municipal agreements and registered agreements with publicly regulated utilities providing such have been complied with, or security has been posted to ensure compliance and completion, as evidenced by a letter from the relevant municipality or regulated utility; This is the second statement on the list of exceptions. It deals with: • Registered municipal agreements • Registered agreements with publicly regulated utilities The balance of the sentence contains two provisos: • Providing such have been complied with, or • Security has been posted to ensure compliance There is one further qualification, and that is that the municipality or utility is to provide evidence by way of a letter. So, we start off with the proposition that in a new area under development there may be a municipal development agreement. Older areas in the province would be unlikely to have such agreements. They became commonplace in the 1960’s and 1970’s and became increasingly more sophisticated thereafter. Initially, these agreements imposed conditions and requirements for development upon the subdivision developer. They required roads to be built, storm and sanitary sewers to be constructed and parkland to be dedicated to the municipality. This would be a work in progress. It might take 5 years. However, the first few streets in the new subdivision might already be available for occupancy. Some municipalities require a performance bond to be posted by the developer to ensure compliance. In most new areas, the matter of water drainage is an issue. When the land sat as a 100 acre farm, that was fine, the water drained off naturally into some creeks and streams. Now that 400 or more houses sit on the same land, the rainfall must drain in accordance with a proper and approved municipal drainage plan. Sometimes, it didn’t work! And someone’s basement filled up with water. That’s not fine. The solution is straightforward, make a provision in the subdivision agreement whereby the developer can come back for years and re-do the grading, if need be. If you are one of the ten properties that has your backyard dug up, you’re not going to like it. But, if you are the one whose basement is filled with water after every heavy rainfall, then this is a good system. Let’s have a quick look at the steps in the process: 1. Registration of municipal development agreement on title 2. Posting of security by developer with municipality 3. Construction of first of 500 homes 4. Occupancy of early homes 5. Completion of subdivision 6. Completion of last homes in subdivision 7. Acceptance of subdivision by municipality 8. Release of developer by municipality 9. Release of security posted 10. 2 years, 5 years, 10 years after final release In the early stages, the municipality can confirm that they have received adequate security for the completion of the terms of the subdivision agreement. Remember that the cost or the lien imposed upon all of the properties might be $20 million. That’s a major lien against one single house. By steps 8 and 9, the municipality can confirm that they are satisfied with the completion of the subdivision. Now, we come to the final step. There may be a continuing obligation imposed upon the new homeowners to permit the developer to return and re-grade the property. This might have a time limit of short duration, ie. 2 years, 5 years, or 10 years following the final “sign-off” by the municipality. In other cases, there is a continuing easement to this effect in the agreement. If that is the case, then there is no expiration date. The question, then, is how significant is that? Does anyone really care? Does it matter? Actually, it seems like a general benefit to everybody in the subdivision. And, most of the time, repair work does not need to be undertaken. The big risk would be a new builder, developer or commercial development taking place. That buyer may find that they are exposed to additional responsibilities compared to others. In such case, they should search the title ahead of time. Don’t submit an Offer without knowing the facts. Alternatively, this provision in the standard form agreement must be amended. There are similar issues that arise when we are discussing the regulated utilities, hydro, gas, water, sewers, telephone and cable companies are all regulated. In some cases, their equipment is contained and restricted to an easement that is registered and in other cases, it is not. Each must be investigated and the location of equipment should be identified prior to acceptance. This standard form provision obligates the buyer to accept these agreements. However, the theory is much the same as the municipal agreements. G) (c) any minor easements for the supply of domestic utility or telephone services to the property or adjacent properties; and The prior sentence dealt with the agreement itself. This sentence deals with acceptance of easements. Buyers have to accept “minor easements”. So, the first question is “what is minor”? This might not be so clear. What is minor to one person might not be minor to another. Easements are frequently 10 to 15 feet wide. That can be quite a swath of property if it runs through the middle of someone’s rear yard. It might, for example, prevent the installation of a swimming pool. If that is the case, then the buyer should at least be able to terminate the transaction. But, the wording as it stands may prevent that. Consequently, the agreement should be amended.

It is also noteworthy that the property need not benefit from the imposition of the easement. Also, note that the easement need not be “registered”. The clause did not say “any minor registered easements”. If they wanted to say that then they could. In the previous sentence, they specifically said “registered”. That brings us to the next question. Assume your neighbour’s cable goes down. Now, the cable company comes along and hooks into yours. They run the new line over your property, that is, along the ground, not buried in it. In due course, they promise to come back and bury it later. Maybe, they never do! In those circumstances, we have an unregistered easement. If nothing is said, the standard form agreement obligates the buyer to accept. So, if you’re the owner, you’re protected in the sale and if you’re the buyer, then you’re stuck. I) If within the specified times referred to in paragraph 8 any valid objection This next part of the sentence deals with requisitions. The time limits for the two requisition periods are set out in paragraph 8. The first step is to observe the appropriate time limit, and the second step is to submit a “valid objection”. That means something that has arisen out of a search that requires resolution. J) to title or The first matter on the list is “title”. The specified date in the agreement applies here. That is the title search date. There are several matters that are close to title problems but are not covered, and they are: • Matters of conveyance • Matters of contract • Root of title issues In all three cases, you need not submit requisitions within the prescribed time, you may submit requisitions at any time, up until closing. K) to any outstanding work order or deficiency notice, or For work orders and deficiency notices, the second requisition date will apply. L) to the fact the said present use may not lawfully be continued, or Again, the second time limit will apply to the risk of present use. M) that the principal building may not be insured against risk of fire The matter of insurance also brings the second time limit into play. N) is made in writing to Seller and which Seller is unable or unwilling to remove, remedy or satisfy or obtain insurance The requisitions are actually completed by the purchaser’s solicitor and submitted to the vendor’s solicitor. Writing is not usually an issue, but I suppose in the event that the vendor were not available and had failed to appoint a solicitor, then the Notices paragraph in the agreement may be helpful. The seller is then provided with some options in the event of a proper and valid objection which the seller is: • unable or • unwilling In the case of “unable”, this usually means that it is not legally possible. In the case of unwilling” this is likely to arise by reason of cost. If it were simple, straightforward and did not cost very much, then likely the seller would agree. We are next presented with the four types of solutions: 1) remove, 2) remedy, 3) satisfy, or 4) obtain insurance The appropriateness of these various solutions will largely depend upon the nature of the problem in the first place. “Remove” means delete, or arrange for a registration that has the effect of removing the original. “Remedy” is also at times a suitable solution, as is “satisfy”. That was always the case, or at least for the last century that was the paragraph contained in most standard form agreements. However, the current OREA standard form actually goes one step further. It provides that “insurance” is also a satisfactory or suitable solution. It may not be! But, unless the wording is changed, the buyer is stuck with this clause. Insurance is good enough and that’s the deal. The buyer identifies the problem, the seller secures insurance and by the terms of this agreement, that is a sufficient response. Let’s consider the case where the seller owns two 50 foot wide properties separated by a laneway. The laneway is 10 feet in width. There is a title defect. The seller obtains insurance to pass on to the buyer. It provides a remedy if anyone ever comes along to claim the laneway. But, the seller really wants to build a rather large structure over the entire 110 feet. This insurance is not good enough, but it may be all that is required to comply with this provision in the agreement. The buyer has to close the deal. He has three properties, two 50 foot properties and one 10 foot property (with insurance). This does not allow him to go ahead and build as if he had one 110 foot property. In a large number of cases, insurance will not be an appropriate solution. So, always make the necessary amendment, as required. O) save and except against risk of fire (Title Insurance) in favour of the Buyer and any mortgagee, It is difficult to deal with this sentence in the abstract. Remember that this sentence started out with “……Seller is unable or unwilling to…. obtain insurance…”. This clause starts out with the “exception”, before it goes back to the “obligation”. The property must be able to satisfy the insurer’s requirements when it comes to insurability. That means “fire insurance”, not other kinds of insurance. The insurance that is being referred to in this sentence is “Title Insurance” and that term appears in brackets. It makes good sense, since title insurance may afford an appropriate solution in some cases. But, in all cases, the property should be insurable. The insurance policies should all be available to be in favour of either the buyer or mortgagee as named insureds. This clause is not easy to read. It is very awkward in the manner in which the thoughts are expressed. I have offered an interpretation of my own, that is, my own meaning arising from the words that are expressed. It is difficult and lends itself to other interpretations as well. In addition, there is an unintended “out” in this paragraph. Assume the property is worth land value. There is situate an old building that requires demolition. It may not be insurable. The buyer may later decide not to proceed with this transaction. The lack of insurability of the old building may provide a sufficient requisition to enable the buyer to avoid the transaction. P) (with all related costs at the expense of the Seller), Recognize that the problem already exists, and it is the seller’s problem. Consequently, it makes sense to include a provision to the effect that the seller will pay. Q) and which Buyer will not waive, Here, we are now swinging back in the transaction to the defect. So, all we are really saying here, is that the buyer will not waive the defect and proceed with the transaction. R) this Agreement notwithstanding any intermediate acts or negotiations in respect of such objections, It is contemplated that money might offer something of a solution. If both parties cannot reach an agreement with respect to the value of the discount, deficiency or possible correction of the problem, then we need to wind things up. S) shall be at an end and The agreement is at an “end”. Note, that the agreement is not “null and void”; it is at an “end”. It is concluded or finished. Both parties can still sue one another. If the agreement were “null and void”, then, subsequent lawsuits would be eliminated. But, not here! T) all monies paid shall be returned without interest or deduction and Now, we have some agreed upon rules relating to the “end” of this agreement. The first rule is that all monies paid are to be returned without interest or deduction. All monies means “all monies”. That means all deposits together with any other monies paid. Here you would be particularly concerned about option prices. This clause says that they are to be returned. Ordinarily, option payments are to be retained by the seller, no matter what. So, make sure that this clause is not in conflict with the intentions of the parties. The prior wording said “…..all monies paid shall be returned in full..”. This time the concept of “in full” has been omitted. Nevertheless, there are to be no deductions, and unless the matter of interest were dealt with otherwise in the agreement, then there is no interest. U) Seller, Listing Brokerage and Co-operating Brokerage shall not be liable for any costs or damages. This is an interesting statement. It is a negotiated term in the contract between the seller and the buyer, so, in the right circumstances, the seller will not be responsible for costs or damages. But, why throw in the Listing Brokerage and the Co-operating Brokerage? I suppose because the document was drawn up as a standard form by an association of realtors! Legal stationers’ forms do not include this type of clause. You probably have noticed that neither the listing brokerage nor the co-operating brokerage are made parties to the contract. There is no consideration for the promise. On the assumption that both have a contract with their respective clients, then the clients will be suing them pursuant to that contract, not the agreement of purchase and sale. Well, I suppose, it’s worth a try! V) Save as to any valid objection so made by such day and This is the consequence or the substantive result of missing the requisition date or dates. There were two specified. W) except for any objection going to the root of the title, This is an acknowledgment that root of title matters are not covered by either of the first two requisition dates. Either, one might say that a root of title issue can be submitted as a title objection right up to the time of closing, or alternatively, the root of title objection has the date of closing as the requisition date. X) Buyer shall be conclusively deemed to have accepted Seller’s title to the property. This is the final conclusion and consequence of missing the requisition date. If the date is missed then the objection cannot be used. The risk associated with that particular defect transfers from the seller to the buyer. The real problem occurs with the potential mortgagee. The buyer may indeed be content to accept the defect, but the mortgagee is not. The mortgage commitment will not obligate the mortgagee to close. So, that’s a problem, and a very significant one at that. Comment This particular paragraph in the agreement is unduly complicated and prolix. It is difficult to follow, and there are some soft points when it comes to title insurance and liability disclaimers. The provision has been drafted to lock the parties together. It favours neither the seller nor the buyer. In that sense, I suppose it’s fair. However, it rarely matches exactly the best interests of both the buyer and the seller. The question then, if that is the case, why is it so rarely amended?

Brian Madigan LL.B., Broker

www.OntarioRealEstateSource.com

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Real Estate Event - How To Sell A House In 2024

Learn Exactly How To Sell A House In 2024!

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Executive Homes Realty Inc.

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How to Sell a Home: Real Estate Event

Home Selling Workshop Join our exclusive real estate event focused on the home selling process, your gateway to unlocking the secrets of successfully selling your home! Delve into a comprehensive exploration of home selling, where seasoned experts unravel the strategies for preparing, pricing, and marketing your property. From understanding market trends to mastering negotiation and closing processes, our workshop empowers attendees with practical insights and actionable steps to thrive in the real estate market. Whether you're a first-time seller or looking to maximize the value of your property, this event promises invaluable networking opportunities, cutting-edge market analyses, and personalized Q&A sessions tailored to your home selling goals. Don't miss your chance to take control of your home selling journey and achieve the best possible sale. Reserve your spot now and embark on the path to successful home selling!

Unlock the Secrets to Selling Your Home: Your Path to a Successful Sale

Are you considering selling your home but unsure where to start? Rest assured, the process is more straightforward than you think. This seminar offers a comprehensive guide to help you navigate the home selling journey with ease, empowering you to make well-informed decisions and seize the best opportunities.

Streamlined Steps to Success Discover the simple, step-by-step process outlined below:

• Define Your Goals and Timeline: Begin by establishing your home selling objectives and determining your ideal timeline for the sale.
• Research the Market: Assess key factors including current market conditions, comparable home sales, and buyer demand to set a competitive listing price.
• Engage with Your Agent: Seek additional details and insights from your real estate agent to inform your pricing strategy and marketing plan.
• Prepare Your Home for Sale: Enhance your property's appeal through staging, repairs, and curb appeal improvements to attract potential buyers.
• Marketing and Showcasing: Use targeted marketing strategies and schedule open houses or private showings to generate interest.
• Receive and Evaluate Offers: Review offers with your agent, considering both price and terms to choose the best one.
• Negotiation and Legal Review: Engage in negotiations as needed and work with an attorney to ensure all legal aspects are covered.
• Meet Conditions and Finalize the Sale: Fulfill any stipulated conditions outlined in the agreement and proceed to closing with confidence.
• Close the Transaction: Finalize the sale, sign the necessary documents, and transfer ownership to the buyer.

Follow these systematic steps to successfully sell your home and achieve your desired outcome. Are you ready to seize this exciting opportunity? Let's dive in!

Meet Calvin Oanes, Your Real Estate Mentor

Join Calvin Oanes, the visionary founder of 007Realty, a trusted consultancy providing expert guidance, asset management solutions, and educational resources for homebuyers. With a track record of over $1,000,000+ in sales, Calvin possesses the insights and experience to empower you on your home buying journey, whether you're a first-time buyer or looking to upgrade. Whether your goals revolve around finding the perfect family home or investing in real estate, Calvin is here to guide you every step of the way.

How to Sell a Home: Live Project Breakdown

Weekly Live Project Breakdown Every week, we will review a current home listing for sale. This comprehensive analysis includes:

• Project Overview: A detailed look at the property's features and selling points.
• Price Breakdown (Listing Price Strategy): Understanding how to competitively price your home in the market.
• Comparative Market Analysis (CMA): Evaluating how your property compares to similar homes and its potential market value.
• Cost Breakdown (Selling Costs): Outlining all associated costs, including agent fees, staging, and closing costs.
• Review of Current Market Trends: Insights into how your property aligns with current real estate trends.

Explore Home Selling: What You'll Learn

• Introduction to Home Selling
• Understanding the Home Selling Process: Grasping the basics of selling a home from listing to closing.
• Benefits of Selling Your Home
• Financial Gain: Exploring opportunities for maximizing your sale price.
• Personal Satisfaction: Assessing the benefits of moving on to your next adventure.
• Market Analysis
• Target Buyers: Identifying and understanding the demographic that best suits your home.
• Demographic and Economic Indicators: Analyzing key factors that influence home sale prices.
• Property Preparation and Due Diligence
• Criteria for Enhancement: Establishing what improvements or staging are needed to attract buyers.
• Comprehensive Due Diligence: Ensuring all legal, structural, and financial checks are in place before listing.
• Marketing Strategies
• Traditional and Creative Marketing: Exploring various options, from online listings to open houses, to attract potential buyers.
• Deal Structuring
• Negotiation Skills: Enhancing your ability to negotiate favorable terms with buyers.
• Legal Considerations: Navigating contracts and ensuring compliance.
• Risk Management and Mitigation
• Risk Assessment: Identifying potential risks in the selling process.
• Mitigation Strategies: Implementing effective measures and considering insurance options.
• Exit Strategies
• Planning Your Next Move: Preparing for relocation or reinvestment after the sale.
• Networking Opportunities
• Connecting with Other Sellers: Building a community network within the real estate market.
• Current Market Trends
• Staying Informed: Keeping up with the latest trends and adapting strategies accordingly.
• Q&A Session
• Interactive Discussions: Addressing specific questions and tailoring discussions to audience interests.

Home Selling Workshop for All Levels Embark on a transformative journey, regardless of your home-selling experience. Our workshop unveils innovative concepts and strategies to help you sell your home. Discover proven methods from experts who have successfully navigated the real estate market and accelerate your path to a successful sale. Connect with seasoned sellers, gaining insights into effective strategies and building a network that propels you closer to your home-selling goals.

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