What you need to know about buying an assignment condo

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

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What is an assignment sale?

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

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Cons of buying an assignment condo

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

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Pros of buying an assignment condo

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

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Costs Breakdown

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

	Type of payment	Amount	Due date
	Deposit for assignment purchase	Typically 5% of purchase price.	24 hours after acceptance of assigment agreement.
	Builders deposit	Typically 20% of the purchase price that the Assignor paid to the builder.	Can vary, but typically 15% is due upon builders’ approval of the assignment with the remaining 5% due on closing of the building.
	Assignor’s profit	The profit the Assignor has made varies in each case. Right now it’s in the $50-$100k range.	Typically due on closing of the building, but can be negotiated.
	Builder levies	This amount is available in the original contract between the Assignor and the builder. It can range from $0 to thousands of dollars.	Typically due on closing of the building.

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Assignments and renting

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

Final note

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

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