Toronto has seen record numbers of condo developments and condo sales in the last ten years. Condos are a hot commodity these days for Toronto real estate buyers and investors alike. You may have noticed MLS condo listings that state “assignment” sales. This blog post will walk you through what a condo assignment sale is and what this entails for the buyer.
What Is A Pre-Construction Condo Sale?
When a developer first sells a condo as pre-construction (i.e. yet to be built development), they sell the legal paperwork for a particular price, set up or terms and conditions to a buyer, in many cases, an investor. Then, over a certain amount of time (in some cases a few years), the condo development completed the building, received the necessary permits from the city of Toronto and provided “interim” occupancy” when a buyer can move into their condo space. However, the buyer does not own the condo at this stage – instead, they have the right to inhabit for a fee that equates to roughly a mortgage payment, condo fees and taxes. Similar to rent. The reason is that Toronto’s land registry has yet to provide the title. Therefore a bank or mortgage lender cannot lend money without ownership title.
The city building officials will do their final inspections to provide a legal title and official registration. Once this registration period is complete, the buyer receives the legal title. The bank will then release funds to the developer to complete the condo closing. Note that the condo occupation or interim period can last from a few weeks to a couple of years.
What Is A Condo Assignment Sale?
Some buyers may decide to sell their pre-construction condo paperwork before the final closing – this can be for lifestyle reasons, financial reasons, or an investor has seen the desired amount of appreciation and would like to move on to another investment. In this case, if the developer and condo pre-construction legal paperwork permit, the seller can sell the agreement as a condo assignment sale. In other words, the contract (not the condo) is sold to another buyer as no land title has been received from the city.
What is essential to consider here is that you must hire a great lawyer when you purchase a condo assignment. You will need them to confirm that you like the terms and conditions of the pre-construction developer contract as you cannot adjust the contents. The buyer inherits the exiting terms and conditions of sale—zero negotiation of the original agreement. The only negotiation maybe with the seller of the pre-construction paperwork regarding price.
There can be a developer fee and approval to be paid to permit the transfer and marketing of the condo assignment on MLS.
Assignee vs Assignor
The assignor is the party that is selling the assignment paperwork. The Assignee is the party that is purchasing the transfer assignment.
Assignment vs Waiting For Resale
Some condo investors choose to assign their condo paperwork versus waiting for resale. There can be a few reasons for this. Toronto has seen huge value appreciation over the last decade, and some investors wish to cash in on the gains without incurring closing costs and a mortgage. Another reason for assigning the condo agreement can be that the owner cannot close on the condo due to financial restraints, perhaps they can’t float the mortgage, or they no longer are mortgage approved by the bank.
Some condo paper holders may choose to wait until resale to further capitalize on appreciation gains over the long term before going to the resale market, which exposes the condo to more buyers and investors.
Pros & Cons Of A Condo Assignment Sale
- As mentioned above, you take on the risks that the original buyer may have overlooked. We see this all the time; the original buyer didn’t use a highly-skilled pre-constriction lawyer to review the agreement during the ten-day “cooling-off period.” You now will shoulder these overlooked issues. You can avoid this by hiring your lawyer who reviews the documents and cannot purchase the condo assignment or go ahead with the outcome clearly understood ahead of time. We also know closings and occupancy timelines have delayed many people. Patience is key.
- A new build involves – HST – this may apply or be rebated; it’s on a case by case basis.
- Your deposit is roughly 5% of the purchase price in a resale condo purchase. However, you will need to match the original buyer’s deposit in a condo assignment. This could be as much as 25% to the developer.
- In Ontario, we have what is called a TARION warranty. (fun fact: notice how someone thought it would be fun to move around the letters that make up “Ontario” to create this warranty name?) This warranty covers larger deficiencies and issues that arise in a staggard period of time – i.e. expiring dates in the years to come.
- Be sure to have your lawyer review a cap on fees. The closing cost can get quite expensive if you are not prepared.
- Legal handling of the closing is more complicated than a resale condo closing. As a result, the fees can be slightly higher, maybe as much as $500-1000 more.
- Land transfer tax – yes, if you are the buyer closing the condo assignment, you will own the Toronto and Ontario land transfer taxes. You will need this cash on hand at closing (you cannot mortgage the taxes).
