What Is an Assignment Sale?
An assignment sale occurs when a buyer of a pre-construction condo sells their interest in the purchase agreement to another buyer before the building is completed. In Ontario, this is a common strategy for investors who want to exit a deal before closing or for end-users who weren't able to buy directly from the developer. The original buyer (assignor) transfers their rights and obligations to the new buyer (assignee), who steps into the original contract. This guide explains everything you need to know about assignment sales in Ontario, from legal requirements to tax implications.
Why Assignment Sales Happen
Investors often use assignment sales to capture profits when property values rise during construction. For example, someone who bought a pre-construction condo in Toronto for $600,000 might sell the assignment for $700,000 a year later, pocketing the difference (minus fees and taxes). Other reasons include financial hardship, relocation, or a change in investment strategy. On the flip side, buyers may seek assignments to get a unit in a sold-out project or to avoid waiting for a new launch.
Step-by-Step Process for Assignment Sales
Step 1: Check the Assignment Clause
The first step is to review the original purchase agreement. Most developers include an assignment clause that outlines whether assignments are allowed, and if so, under what conditions. Some developers prohibit assignments entirely, while others allow them with a fee (often 1–2% of the purchase price) or only after a certain stage of construction. Always get written consent from the developer before proceeding—otherwise, the assignment may be void.
Step 2: Find a Buyer or Seller
For assignors, listing the assignment on a platform like PreconFactory or through a real estate agent experienced in assignments is key. For assignees, working with an agent who has access to assignment listings in the GTA—such as in Mississauga, Vaughan, or Brampton—can uncover opportunities. Be aware that assignment sales are not listed on MLS as standard resales; they require specialized marketing.
Step 3: Negotiate Terms
The assignment agreement includes the purchase price, deposit structure, and any adjustments. Typically, the assignee pays the assignor a premium (the profit) plus reimbursement of the original deposits. For example, if the original deposit was $100,000 and the assignor wants a $50,000 profit, the assignee pays $150,000 total. The assignee also takes over future deposits and closing costs. Negotiate carefully—the assignor may want a quick sale, while the assignee wants a fair price.
Step 4: Sign the Assignment Agreement
Both parties sign an assignment agreement, which is a separate contract from the original purchase agreement. It should clearly state the rights being transferred, the purchase price, deposit details, and any conditions (e.g., financing, inspection). A real estate lawyer should draft or review this document to ensure it complies with Ontario law and the developer's requirements.
Step 5: Obtain Developer Consent
The developer must sign off on the assignment. They may charge an administrative fee (often $500–$5,000) and require the assignee to meet the same financial qualifications as the original buyer. Some developers also have a right of first refusal, meaning they can buy back the unit at the assignment price. Once consent is granted, the assignee becomes the new party to the original contract.
Step 6: Close the Assignment
On the assignment closing date (which is before the final building closing), the assignee pays the assignor the agreed amount. The assignor then transfers their interest. The assignee continues making deposits as required by the developer. The final closing with the developer happens when the building is complete, and the assignee takes title.
Tax Implications of Assignment Sales
Assignment sales have unique tax rules in Canada. The CRA treats the profit from an assignment as business income (fully taxable) if the assignor is a flipper or investor, or as a capital gain (50% taxable) if the property was held as an investment. However, recent rule changes have tightened the criteria—many assignment sales are now considered business income. Additionally, if the assignor is not a resident of Canada, the buyer may be required to withhold 25% of the gross proceeds and remit it to the CRA under Section 116 of the Income Tax Act. Consult a tax professional to understand your specific liability, as penalties can be steep.
Pros and Cons of Assignment Sales
For the Assignor (Original Buyer)
- Pros: Potential to profit before closing, exit an unwanted contract, avoid closing costs, and free up capital for other investments.
- Cons: Developer fees, taxable profit, loss of future appreciation, and the risk of the market declining before you find a buyer.
For the Assignee (New Buyer)
- Pros: Access to units in sold-out projects, lower deposit requirements (sometimes), and the ability to negotiate a price below market value.
- Cons: No Tarion warranty (only the original buyer has it, but it may transfer), potential for higher closing costs if the developer imposes fees, and limited ability to inspect the unit before final closing.
Key Considerations for GTA Investors
The GTA market has seen a surge in assignment sales due to rising prices and interest rate changes. According to TRREB data, assignment listings have increased in areas like Oakville, Burlington, and Richmond Hill. However, buyers should be cautious: the Bank of Canada's rate hikes have made it harder for assignees to qualify for mortgages at final closing. Always run the numbers using a mortgage calculator and factor in the stress test. Also, be aware that some developers have started restricting assignments to curb speculation—check with the developer early.
Common Pitfalls and How to Avoid Them
1. Developer Refusal: Always get written consent before marketing the assignment. Without it, the developer can cancel the deal. 2. Tax Surprises: As noted, the CRA may tax your profit as income. Set aside funds for taxes. 3. Financing Issues: Assignees may struggle to get a mortgage at final closing if property values have dropped or rates have risen. Have a backup plan. 4. Legal Mistakes: Use a lawyer experienced with assignments. A poorly drafted agreement can lead to disputes. 5. Underestimating Costs: In addition to the premium, assignees pay land transfer tax (based on the original purchase price, not the assignment price) and legal fees. Use a land transfer tax calculator to estimate.
Conclusion
Assignment sales can be a win-win for both parties when executed correctly. For investors looking to sell a pre-construction home in Mississauga or buy a unit in a hot Toronto project, understanding the process is crucial. Always work with a real estate lawyer, a knowledgeable agent, and a tax professional. Ready to explore assignment opportunities? Browse pre-construction projects on PreconFactory to find assignments or get VIP access to new launches before they hit the open market.
Related Reading
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- 5 Underrated Neighborhoods in the GTA with Massive ROI Potential
- Pre-Construction vs. Resale: Which One Actually Makes More Money?
- 5 Underrated Neighborhoods in the GTA with Massive ROI Potential
Frequently Asked Questions
1. What is an assignment sale in Ontario real estate?
An assignment sale is when the original buyer of a pre-construction condo sells their contract rights to another buyer before the building is completed. The new buyer (assignee) takes over the original purchase agreement and makes the remaining deposits, while the original buyer (assignor) receives a profit or loss. In Ontario, assignment sales are common among investors, but they require developer consent and careful legal documentation.
2. Is an assignment sale taxable in Canada?
Yes, the profit from an assignment sale is generally taxable. The CRA may treat it as business income (fully taxable) or a capital gain (50% taxable), depending on your intent and holding period. Recent rule changes have made it more likely to be considered business income. You should consult a tax professional for your situation, as penalties for non-compliance can be significant.
3. How do I find assignment sales in the GTA?
Assignment sales are often listed on specialized platforms like PreconFactory, or through real estate agents who focus on pre-construction. They are not typically on the MLS as standard resales. You can also check social media groups or contact developers directly to see if they have a list of available assignments. Areas like Toronto, Mississauga, and Vaughan have active assignment markets.
4. Do I need a lawyer for an assignment sale?
Yes, it is highly recommended to hire a real estate lawyer experienced with assignment sales. The legal process involves reviewing the original purchase agreement, drafting the assignment agreement, obtaining developer consent, and ensuring compliance with Ontario law. A lawyer can also help with tax implications and closing procedures.
5. Can I assign my pre-construction condo if the developer doesn't allow it?
If the original purchase agreement prohibits assignments or requires developer consent, you cannot legally assign without permission. Attempting to do so could result in the developer canceling the contract. Always check the assignment clause and obtain written consent from the developer before proceeding.
6. What are the fees involved in an assignment sale?
Fees can include a developer consent fee (often 1–2% of the purchase price or a flat fee of $500–$5,000), legal fees for both parties, real estate commission (if using an agent), and any adjustments for deposits. The assignee also pays land transfer tax based on the original purchase price, not the assignment price.
7. How does the mortgage stress test apply to assignment buyers?
Assignees must qualify for a mortgage at the final closing based on the original purchase price and current interest rates. The stress test requires them to qualify at a rate typically 2% higher than the contract rate. Since interest rates can change between the assignment and final closing, it's important to use a mortgage calculator and consult a broker to ensure you can meet the stress test at closing.
8. What happens if the assignee can't get a mortgage at closing?
If the assignee fails to close, the developer may keep the deposits and sue for damages. The assignor (original buyer) could also be liable if the assignee defaults, depending on the assignment agreement. That's why it's crucial for assignees to secure financing early and have a backup plan.
9. Is there a cooling-off period for assignment sales?
No, the standard 10-day cooling-off period for new pre-construction purchases does not apply to assignment sales. Once you sign the assignment agreement, it is binding. There is no automatic right to cancel, so ensure you are fully committed before signing.
10. What is the difference between an assignment and a resale?
A resale is a sale of a completed unit where the buyer takes title immediately. An assignment is a sale of the contract before the building is complete—the assignee doesn't take title until the building is finished. Assignments often have different tax rules, deposit structures, and legal requirements compared to resales.