The Ontario Real Estate Association (OREA) form of Agreement of Purchase and Sale (APS) for residential resale homes contains many boilerplate provisions that are found in most contracts. However, one provision that is not contained in this standard APS is in respect to “assignment”. An assignment occurs when a party assigns (i.e., transfers) all of its legal rights and interest in the APS to a third party (the “Assignee”), following which this Assignee then becomes the party in the place and stead of the person who has made this assignment (the “Assignor”). The Assignee is not buying the property from the Assignor, but is rather buying the Assignor’s right to acquire the property from the Seller. The Assignee assumes and agrees to perform all of the Assignor’s obligations under the original APS, including paying the purchase price and adjustment costs on closing – in essence, the Assignee steps into the shoes of the Assignor as Buyer and completes the transaction with the Seller.
Unlike builder agreements for new homes, which usually expressly prohibit assignment without first obtaining the builder’s consent, the standard OREA APS for resale properties does not expressly forbid assignment. As such, these agreements are assignable by default, without needing the consent of the other party. If either party wishes to restrict the ability for the other party to assign its interest in the OREA APS, they would need to insert such restrictive language explicitly in Schedule A to the APS.
Assignments of resale properties can occur for a variety of reasons. For instance, someone can enter into an APS to buy a property, but then has a change of heart or circumstance and now needs a way out of the deal. Another example is when a couple’s offer for their dream home is not accepted in a bidding war, so they decide to make the couple who won the war a better offer in exchange for the right and interest in the APS. Also, if you signed an APS in your individual capacity, but for tax and liability reasons you want your corporation to hold title in your place, you can assign your rights and interest in the APS to such corporation. Finally, many real estate investors tend to be drawn to assignments as they can be a quick way to make a profit.
When the Assignor and Assignee have agreed to an assignment, this agreement needs to be put to writing. OREA has prepared a standard form agreement for this arrangement as well, called an Assignment Agreement. The Assignment Agreement outlines the Assignor’s and the Assignee’s obligations and representations made to one another. In it, the Assignor promises that the original APS is in good standing, that the Assignor is not in breach of any of its obligations to the Seller, and that the Assignor has the right to assign the original APS (i.e., there is no language to the contrary in the original APS). The Assignee must assume all of the Assignor’s obligations per the original APS, in addition to paying the Assignor the stipulated assignment fee as per the Assignment Agreement. The Assignee should always get a copy of the original APS from the Assignor and it should be attached to the Assignment Agreement as a schedule.
The flow of funds between the Assignee, Assignor and Seller can sometimes be confusing. The Assignee on closing pays the Seller the purchase price as listed on the original APS, including all adjustment costs and land transfer tax and other closing costs. The amount the Assignee pays to the Assignor usually equals the price paid to the Assignor as per the Assignment Agreement, minus the original purchase price to be paid to the Seller, plus the deposits paid by the Assignor to the Seller on the original APS. Typically, the balance of the purchase price on the Assignment Agreement to be paid to the Assignor should be paid by the Assignee upon the closing of the original APS.
There are, of course, certain risks and complications for the Assignor and Assignor in these transactions for which they should be made aware. The Assignor is generally still obligated to close on the transaction with the Seller via the original APS if the Assignee defaults or fails to close (but the Assignor would have recourse against the Assignee in this case). If the balance of the funds owed to the Assignor is set to be paid upon the acceptance and execution of the Assignment Agreement (as opposed to being payable upon the closing of the original APS) and the transaction does not close with the Seller, then the Assignee (a) would not receive the property and (b) would be out of pocket the funds it has already provided the Assignor. The Seller may also not always not cooperate with the Assignee, and may insist on only dealing with the Assignor and Assignor’s lawyer. This may occur if the Seller is resentful after discovering that the Assignor profited from assigning the APS. The Seller may feel as if he/she sold the property for under market value if the Assignor is able to assign the original APS for a profit. If the Seller refuses to close with the Assignee or defaults as per its obligations in the original APS, the Assignment Agreement is deemed to be void and the Assignor must return the Assignee’s deposit as per the Assignment Agreement.
An assignment can be an effective way to exit a deal, to get another chance at securing a property you lost in a bidding war, and/or to make a profit. In these types of transactions there is typically three different lawyers: one acting for the Seller, one for the Assignee, and another for the Assignor. Many real estate lawyers are not completely comfortable or competent with handling a real estate transaction involving an assignment. If you find yourself in the position of being an Assignor or an Assignee, be sure to consult with a real estate lawyer with experience in these types of unique deals to ensure your specific rights are protected and the funds are distributed properly.