To understand what an assignment is, you need to first understand the phases of the pre-construction condo.
Any buyer entering into a pre-construction purchase has to sign a pre-construction purchase contract that outlines prices, terms and conditions, deposit schedules and more.
Owners are allowed to move into their units during the interim occupancy period, and essentially take possession of the property. During this period, no land transfer or closing has occurred, and the owner pays the builder rent for occupancy until it closes officially.
When the new condominium has passed its city inspections and becomes a legal entity, the condo can officially be registered. During this registration time, condo ownership is transferred to the buyers, mortgages begin, and buyers become owners; the sale has closed.
The assignment can happen any time after the pre-construction contract is signed.
Change of heart
Buyers of pre-construction condos might change their mind and want to sell their condo before the occupancy or before the official closing. The original buyer can sell their pre-construction purchase contract to another buyer, which is called an assignment.
What is a condo assignment?
When a buyer sells an assignment, it means they’re selling their interest or intent in the property.
If you purchase an assignment, you become the original buyer. You can’t renegotiate terms or prices, you’re just taking over their contract as is.
Some builders, however, won’t let original buyers assign their contracts to new ones. Some will only allow the transaction with a fee (anywhere from $750 to $7,000). In the majority of cases, buyers will need approval from the builder to assign their contract to someone else.
What to know if you’re buying or selling an assignment
Buying an assignment from someone else means you’re taking on all the terms and conditions that the original purchaser originally negotiated or agreed to. It’s a good idea to have a lawyer review the contract and terms on paper, however, you won’t be able to renegotiate them with the builder.
Assignment buyers may or may not be involved in selecting unit finishings and upgrades.
HST may apply as it applies to all new condos. If you’re an investor who isn’t planning to move into the unit yourself, discuss your HST options with your real estate lawyer and see if you can qualify for an HST rebate.
As an assignment buyer, you’ll usually be required to mirror the deposits made on the property by the original purchaser, to date.
If the seller has already paid the 15% deposit, for example, new buyers could be required to pay that deposit in full. If the assignment buyer doesn't have this much capital, they may not be able to afford the deposit requirement necessary to buy an assignment.
Legal fees are usually higher to buy an assignment than they are to buy a resale condo, sometimes by as much as $700 to $1,000.
Since the property hasn’t closed, the assignment buyer will be the one paying the land transfer tax. The assignment buyer will also have to pay the various closing costs, including utility hookups and development fees.
Consider selling an assignment in a sold-out building
Buying an assignment is a great way to get into a sold-out condo. Likewise, selling an assignment can be an easy way to get out of condo ownership in a sold-out building if you’ve changed your mind for any reason.
Often, the actual purchase price (before closing costs) is less than what it would be once the building is registered and units are allowed to be sold on the resale market. This means buyers of assignments can still profit as investors and see property value increase on the open market.