what is assignment of agreement of purchase and sale

Assignment Of Purchase And Sale Agreement

Jump to section, what is an assignment of purchase and sale agreement.

An assignment of purchase and sale agreement is a real estate transaction contract that defines the parties and terms of a real estate purchase. This agreement allows the original purchaser of a property to transfer or assign their rights in the deal to a third party. This agreement is often used in flipping houses.

Assignment of purchase and sale agreements allows the purchaser to take their rights and obligations under a purchase agreement and reassign them to a third party who will take on those responsibilities. Some contracts may have clauses that prohibit assignment or allow it under specific circumstances usually laid out in the agreement.

Common Sections in Assignment Of Purchase And Sale Agreements

Below is a list of common sections included in Assignment Of Purchase And Sale Agreements. These sections are linked to the below sample agreement for you to explore.

Assignment Of Purchase And Sale Agreement Sample

Reference : Security Exchange Commission - Edgar Database, EX-10.1.1 2 d245573dex1011.htm ASSIGNMENT OF PURCHASE AND SALE AGREEMENT , Viewed October 18, 2021, View Source on SEC .

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Assignment of Purchase Agreement

An assignment of purchase agreement and sale is when a buyer of a new home sells a third party the right to assume the purchase contract. 3 min read updated on February 01, 2023

An assignment of purchase agreement and sale is when a buyer of a new home sells a third party the right to assume the purchase contract. In this situation, the buyer is the assignor, and the third party is the assignee. Under the agreement, the assignee pays a higher price. This agreement must take place in the time between when the assignor agrees to buy the home, but before the contract closes with the builder.

With this period, the assignor never takes the title of the property. Instead, the title is put in the name of the assignee. This is informally known as "flipping a home." The flipping of a home occurs when:

• The original buyer enters into a purchase contract and assigns the contract to the third party before closing ends.
• The original buyer makes a profit from the sale.

If the sale does not close, the seller will lose time, money, and resources.

Advantages and Disadvantages of an Assignment of Contract

There are several advantages of an assignment of contract. With an assignment of contract, you are not actually flipping a home. Instead, you are flipping the contract, which means you don't have to have the financial backing to purchase the property. Not only do you not close on the property, but you will also not have to pay any closing costs or take on any additional expenses.

For wholesale flippers, using the assignment of contract is a way to save thousands of dollars each month. For example, if the closing costs per property are $1,000, and you "flip" 10 properties, that is a $10,000 savings.

Wholesalers only need to put down the purchase contract deposit amount that will be held in escrow with the title company or with an attorney. The lower the deposit, the lower the risk that will be assessed. Deposits may be as low as $10 or $100 and will be easier to lose if there are any delays or issues.

An assignment of purchase agreement allows the assignee to buy into new and desirable neighborhoods that are no longer available through the builder.

The main disadvantage of an assignment of contract is the risk of not finding a buyer. If a third-party buyer is not found, and you are under contract, you are responsible for completing the contract. Additional responsibilities include the responsibility of:

• Existing liens.
• Property taxes.

In addition, if the financing of the assignee cannot be obtained before the closing, this may cause the assignor to be responsible for the closing costs and the purchase of the property. The assignor may also not be able to get his or her deposits returned.

Obtaining the Builder's Consent

For an assignment of a purchase agreement to be valid, the builder and assignor must first have a valid legal contract in place that shows the assignor is obligated to purchase a home or condominium unit from the builder.

The buyer may limit how the property can be sold, including that the property cannot be listed on the MLS (multiple listings service). If it is, it is seen as a competing with the builder. If the assignor puts the property on the MLS, it will be a breach of contract, and the builder will be entitled to damages or rescission of the contract. The buyer will also be able to retain any deposits that have been paid and any other money paid for upgrades and extras.

The assignor must also clearly state the property is an assignment of an agreement of purchase with the builder and not a direct sale from the assignor.

Preparing an Assignment of Purchase Agreement

When preparing the agreement documentation, there are questions that should be asked to determine responsibility. Some of the questions to be asked are:

• Who will be preparing the documents?
• Who will pay the cost to prepare the documents?
• Will the assignment agreement and written consent of the builder be prepared by the builder's attorney? And will they cover the costs?
• Can terms agreed to by the assignor and builder be negotiated by the assignee? If so, who will cover the costs, and how will they be resolved?

A detail that should also be negotiated is the responsibility of paying the commission of the assignment agreement.

If you need help with an assignment of a purchase agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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Content Approved by UpCounsel

• Assignor Definition
• What Is the Definition of Assigns
• Assignment of Rights Example
• Assignment Of Contracts
• Assignment of Rights and Obligations Under a Contract
• Assignment Agreement Definition
• Partial Assignment of Contract
• Assignment Law
• Legal Assignment
• Assignment Contract Law

Assignment Definition

Investing Strategy , Jargon, Legal, Terminology, Title

Table of Contents

• What Is an Assignment?
• What is an Assignment in Real Estate?
• What Does it Mean to Assign a Contract in Real Estate?
• How Does a Contract Assignment Work?
• Pros and Cons of Assigning Contracts

REtipster does not provide legal advice. The information in this article can be impacted by many unique variables. Always consult with a qualified legal professional before taking action.

An assignment or assignment of contract is a way to profit from a real estate transaction without becoming the owner of the property.

The assignment method is a standard tool in a real estate wholesaler’s kit and lowers the barrier to entry for a real estate investor because it does not require the wholesaler to use much (or any) of their own money to profit from a deal.

Contract assignment is a common wholesaling strategy where the seller and the wholesaler (acting as a middleman in this case) sign an agreement giving the wholesaler the sole right to buy a property at a specified price, within a certain period of time.

The wholesaler then finds another buyer and assigns the contract to him or her. The wholesaler isn’t selling the property to the end buyer because the wholesaler never takes title to the property during the process. The wholesaler is simply selling the contract, which gives the end buyer the right to buy the property in accordance with the original purchase agreement.

In doing this, the wholesaler can earn an assignment fee for putting the deal together.

Some states require a real estate wholesaler to be a licensed real estate agent, and the assignment strategy can’t be used for HUD homes and REOs.

The process for assigning a contract follows some common steps. In summary, it looks like this:

• Find the right property.
• Get a purchase agreement signed.
• Find an end buyer.
• Assign the contract.
• Close the transaction and collect your assignment fee.

We describe each step in the process below.

1. Find the Right Property

This is where the heavy lifting happens—investors use many different marketing tactics to find leads and identify properties that work with their investing strategy. Typically, for wholesaling to work, a wholesaler needs a motivated seller who wants to unload the property as soon as possible. That sense of urgency works to the wholesaler’s advantage in negotiating a price that will attract buyers and cover their assignment fee.

RELATED: What is “Driving for Dollars” and How Does It Work?

2. Get a Purchase Agreement Signed

Once a motivated seller has agreed to sell their property at a discounted price, they will sign a purchase agreement with the wholesaler. The purchase agreement needs to contain specific, clear language that allows the wholesaler (for example, you) to assign their rights in the agreement to a third party.

Note that most standard purchase agreements do not include this language by default. If you plan to assign this contract, make sure this language is included. You can consult an attorney to cover the correct verbiage in a way that the seller understands it.

RELATED: Wholesaling Made Simple! A Comprehensive Guide to Assigning Contracts

This can’t be stressed enough: It’s extremely important for a wholesaler to communicate with their seller about their intent to assign the contract. Many sellers are not familiar with the assignment process, so if the role of the buyer is going to change along the way, the seller needs to be aware of this on or before they sign the original purchase agreement.

3. Find an End Buyer

This is the other half of a wholesaler’s job—marketing to find buyers. Once they find an end buyer, the wholesaler can assign the contract to the new party and work with the original seller and the end buyer to schedule a closing date.

4. Assign the Contract

Assigning the contract works through a simple assignment agreement. This agreement allows the end buyer to step into the wholesaler’s shoes as the buyer in the original contract.

In other words, this document “replaces” the wholesaler with the new end buyer.

Most assignment contracts include language for a nonrefundable deposit from the end buyer, which protects the wholesaler if the buyer backs out. While you can download assignment contract templates online, most experts recommend having an attorney review your contracts. The assignment wording has to be precise and comply with applicable local laws to protect you from issues down the road.

5. Close the Transaction and Collect the Assignment Fee

Finally, you will receive your assignment fee (or wholesale fee) when the end buyer closes the deal.

The assignment fee is often the difference between the original purchase price (the price that the seller agreed with the wholesaler) and the end buyer’s purchase price (the price the wholesaler agreed with the end buyer), but it can also be a percentage of it or even a flat amount.

According to UpCounsel, most contract assignments are done for about $5,000, although depending on the property and the market, it could be higher or lower.

IMPORTANT: the end buyer will see precisely how much the assignment fee is. This is because they must sign two documents that show the original price and the assignment fee: the closing statement and the assignment agreement, respectively, to close the transaction.

In many cases, if the assignment fee is a reasonable amount relative to the purchase price, most buyers won’t take any issue with the wholesaler taking their fee—after all, the wholesaler made the deal happen, and it’s compensation for their efforts. However, if the assignment fee is too big (such as the wholesaler taking $20,000 from an original purchase price of $10,000, while the end buyer buys it for $50,000), it may ruffle some feathers and lead to uncomfortable questions.

In these instances where the wholesaler has a substantially higher profit margin, a wholesaler can instead do a double closing . In a double closing, the wholesaler closes two separate deals (one with the seller and another with the buyer) on the same day, but the seller and buyer cannot see the numbers and overall profit margin the wholesaler makes between the two transactions. This makes a double closing a much safer way to conclude a transaction.

Assigning contracts is a way to lower the barrier to entry for many new real estate investors; because they don’t need to put up their own money to buy a property or assume any risk in financing a deal.

The wholesaler isn’t part of the title chain, which streamlines the process and avoids the hassle of closing two times. Compared to the double-close strategy, assignment contracts require less paperwork and are usually less costly (because there is only one closing occurring, rather than two separate transactions).

On the downside, the wholesaler has to sell the property as-is, because they don’t own it at any point and they cannot make repairs or renovations to make the property look more attractive to a potential buyer. Financing may be much more difficult for the end buyer because many mortgage lenders won’t work with assigned contracts. Purchase Agreements also have expiration dates, which means the wholesaler has a limited window of time to find an end buyer and get the deal done.

Being successful with assignment contracts usually comes down to excellent marketing, networking, and communication between all parties involved. It’s all about developing strategies to find the right properties and having a solid network of investors you can assign them to quickly.

It’s also critical to be aware of any applicable laws in the jurisdiction where the wholesaler is working and holding any licenses required for these kinds of real estate transactions.

Related terms

Double closing, wholesaling (real estate wholesaling), transactional funding.

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Understanding an assignment and assumption agreement

Need to assign your rights and duties under a contract? Learn more about the basics of an assignment and assumption agreement.

Get your assignment of agreement

by   Belle Wong, J.D.

Belle Wong, is a freelance writer specializing in small business, personal finance, banking, and tech/SAAS. She ...

Read more...

Updated on: November 24, 2023 · 3 min read

The assignment and assumption agreement

The basics of assignment and assumption, filling in the assignment and assumption agreement.

While every business should try its best to meet its contractual obligations, changes in circumstance can happen that could necessitate transferring your rights and duties under a contract to another party who would be better able to meet those obligations.

If you find yourself in such a situation, and your contract provides for the possibility of assignment, an assignment and assumption agreement can be a good option for preserving your relationship with the party you initially contracted with, while at the same time enabling you to pass on your contractual rights and duties to a third party.

An assignment and assumption agreement is used after a contract is signed, in order to transfer one of the contracting party's rights and obligations to a third party who was not originally a party to the contract. The party making the assignment is called the assignor, while the third party accepting the assignment is known as the assignee.

In order for an assignment and assumption agreement to be valid, the following criteria need to be met:

• The initial contract must provide for the possibility of assignment by one of the initial contracting parties.
• The assignor must agree to assign their rights and duties under the contract to the assignee.
• The assignee must agree to accept, or "assume," those contractual rights and duties.
• The other party to the initial contract must consent to the transfer of rights and obligations to the assignee.

A standard assignment and assumption contract is often a good starting point if you need to enter into an assignment and assumption agreement. However, for more complex situations, such as an assignment and amendment agreement in which several of the initial contract terms will be modified, or where only some, but not all, rights and duties will be assigned, it's a good idea to retain the services of an attorney who can help you draft an agreement that will meet all your needs.

When you're ready to enter into an assignment and assumption agreement, it's a good idea to have a firm grasp of the basics of assignment:

• First, carefully read and understand the assignment and assumption provision in the initial contract. Contracts vary widely in their language on this topic, and each contract will have specific criteria that must be met in order for a valid assignment of rights to take place.
• All parties to the agreement should carefully review the document to make sure they each know what they're agreeing to, and to help ensure that all important terms and conditions have been addressed in the agreement.
• Until the agreement is signed by all the parties involved, the assignor will still be obligated for all responsibilities stated in the initial contract. If you are the assignor, you need to ensure that you continue with business as usual until the assignment and assumption agreement has been properly executed.

Unless you're dealing with a complex assignment situation, working with a template often is a good way to begin drafting an assignment and assumption agreement that will meet your needs. Generally speaking, your agreement should include the following information:

• Identification of the existing agreement, including details such as the date it was signed and the parties involved, and the parties' rights to assign under this initial agreement
• The effective date of the assignment and assumption agreement
• Identification of the party making the assignment (the assignor), and a statement of their desire to assign their rights under the initial contract
• Identification of the third party accepting the assignment (the assignee), and a statement of their acceptance of the assignment
• Identification of the other initial party to the contract, and a statement of their consent to the assignment and assumption agreement
• A section stating that the initial contract is continued; meaning, that, other than the change to the parties involved, all terms and conditions in the original contract stay the same

In addition to these sections that are specific to an assignment and assumption agreement, your contract should also include standard contract language, such as clauses about indemnification, future amendments, and governing law.

Sometimes circumstances change, and as a business owner you may find yourself needing to assign your rights and duties under a contract to another party. A properly drafted assignment and assumption agreement can help you make the transfer smoothly while, at the same time, preserving the cordiality of your initial business relationship under the original contract.

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How To Navigate The Real Estate Assignment Contract

What is assignment of contract?

Assignment of contract vs double close

How to assign a contract

Assignment of contract pros and cons

Even the most left-brained, technical real estate practitioners may find themselves overwhelmed by the legal forms that have become synonymous with the investing industry. The assignment of contract strategy, in particular, has developed a confusing reputation for those unfamiliar with the concept of wholesaling. At the very least, there’s a good chance the “assignment of contract real estate” exit strategy sounds more like a foreign language to new investors than a viable means to an end.

A real estate assignment contract isn’t as complicated as many make it out to be, nor is it something to shy away from because of a lack of understanding. Instead, new investors need to learn how to assign a real estate contract as this particular exit strategy represents one of the best ways to break into the industry.

In this article, we will break down the elements of a real estate assignment contract, or a real estate wholesale contract, and provide strategies for how it can help investors further their careers. [ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]

What Is A Real Estate Assignment Contract?

A real estate assignment contract is a wholesale strategy used by real estate investors to facilitate the sale of a property between an owner and an end buyer. As its name suggests, contract assignment strategies will witness a subject property owner sign a contract with an investor that gives them the rights to buy the home. That’s an important distinction to make, as the contract only gives the investor the right to buy the home; they don’t actually follow through on a purchase. Once under contract, however, the investor retains the sole right to buy the home. That means they may then sell their rights to buy the house to another buyer. Therefore, when a wholesaler executes a contact assignment, they aren’t selling a house but rather their rights to buy a house. The end buyer will pay the wholesale a small assignment fee and buy the house from the original buyer.

The real estate assignment contract strategy is only as strong as the contracts used in the agreement. The language used in the respective contract is of the utmost importance and should clearly define what the investors and sellers expect out of the deal.

There are a couple of caveats to keep in mind when considering using sales contracts for real estate:

Contract prohibitions: Make sure the contract you have with the property seller does not have prohibitions for future assignments. This can create serious issues down the road. Make sure the contract is drafted by a lawyer that specializes in real estate assignment contract law.

Property-specific prohibitions: HUD homes (property obtained by the Department of Housing and Urban Development), real estate owned or REOs (foreclosed-upon property), and listed properties are not open to assignment contracts. REO properties, for example, have a 90-day period before being allowed to be resold.

What Is An Assignment Fee In Real Estate?

An assignment fee in real estate is the money a wholesaler can expect to receive from an end buyer when they sell them their rights to buy the subject property. In other words, the assignment fee serves as the monetary compensation awarded to the wholesaler for connecting the original seller with the end buyer.

Again, any contract used to disclose a wholesale deal should be completely transparent, and including the assignment fee is no exception. The terms of how an investor will be paid upon assigning a contract should, nonetheless, be spelled out in the contract itself.

The standard assignment fee is $5,000. However, every deal is different. Buyers differ on their needs and criteria for spending their money (e.g., rehabbing vs. buy-and-hold buyers). As with any negotiations , proper information is vital. Take the time to find out how much the property would realistically cost before and after repairs. Then, add your preferred assignment fee on top of it.

Traditionally, investors will receive a deposit when they sign the Assignment of Real Estate Purchase and Sale Agreement . The rest of the assignment fee will be paid out upon the deal closing.

Assignment Contract Vs Double Close

The real estate assignment contract strategy is just one of the two methods investors may use to wholesale a deal. In addition to assigning contracts, investors may also choose to double close. While both strategies are essentially variations of a wholesale deal, several differences must be noted.

A double closing, otherwise known as a back-to-back closing, will have investors actually purchase the home. However, instead of holding onto it, they will immediately sell the asset without rehabbing it. Double closings aren’t as traditional as fast as contract assignment, but they can be in the right situation. Double closings can also take as long as a few weeks. In the end, double closings aren’t all that different from a traditional buy and sell; they transpire over a meeter of weeks instead of months.

Assignment real estate strategies are usually the first option investors will want to consider, as they are slightly easier and less involved. That said, real estate assignment contract methods aren’t necessarily better; they are just different. The wholesale strategy an investor chooses is entirely dependent on their situation. For example, if a buyer cannot line up funding fast enough, they may need to initiate a double closing because they don’t have the capital to pay the acquisition costs and assignment fee. Meanwhile, select institutional lenders incorporate language against lending money in an assignment of contract scenario. Therefore, any subsequent wholesale will need to be an assignment of contract.

Double closings and contract assignments are simply two means of obtaining the same end. Neither is better than the other; they are meant to be used in different scenarios.

Flipping Real Estate Contracts

Those unfamiliar with the real estate contract assignment concept may know it as something else: flipping real estate contracts; if for nothing else, the two are one-in-the-same. Flipping real estate contracts is simply another way to refer to assigning a contract.

Is An Assignment Of Contract Legal?

Yes, an assignment of contract is legal when executed correctly. Wholesalers must follow local laws regulating the language of contracts, as some jurisdictions have more regulations than others. It is also becoming increasingly common to assign contracts to a legal entity or LLC rather than an individual, to prevent objections from the bank. Note that you will need written consent from all parties listed on the contract, and there cannot be any clauses present that violate the law. If you have any questions about the specific language to include in a contract, it’s always a good idea to consult a qualified real estate attorney.

When Will Assignments Not Be Enforced?

In certain cases, an assignment of contract will not be enforced. Most notably, if the contract violates the law or any local regulations it cannot be enforced. This is why it is always encouraged to understand real estate laws and policy as soon as you enter the industry. Further, working with a qualified attorney when crafting contracts can be beneficial.

It may seem obvious, but assignment contracts will not be enforced if the language is used incorrectly. If the language in a contract contradicts itself, or if the contract is not legally binding it cannot be enforced. Essentially if there is any anti-assignment language, this can void the contract. Finally, if the assignment violates what is included under the contract, for example by devaluing the item, the contract will likely not be enforced.

How To Assign A Real Estate Contract

A wholesaling investment strategy that utilizes assignment contracts has many advantages, one of them being a low barrier-to-entry for investors. However, despite its inherent profitability, there are a lot of investors that underestimate the process. While probably the easiest exit strategy in all of real estate investing, there are a number of steps that must be taken to ensure a timely and profitable contract assignment, not the least of which include:

Find the right property

Acquire a real estate contract template

Submit the contract

Assign the contract

Collect the fee

1. Find The Right Property

You need to prune your leads, whether from newspaper ads, online marketing, or direct mail marketing. Remember, you aren’t just looking for any seller: you need a motivated seller who will sell their property at a price that works with your investing strategy.

The difference between a regular seller and a motivated seller is the latter’s sense of urgency. A motivated seller wants their property sold now. Pick a seller who wants to be rid of their property in the quickest time possible. It could be because they’re moving out of state, or they want to buy another house in a different area ASAP. Or, they don’t want to live in that house anymore for personal reasons. The key is to know their motivation for selling and determine if that intent is enough to sell immediately.

With a better idea of who to buy from, wholesalers will have an easier time exercising one of several marketing strategies:

Direct Mail

Real Estate Meetings

Local Marketing

2. Acquire A Real Estate Contract Template

Real estate assignment contract templates are readily available online. Although it’s tempting to go the DIY route, it’s generally advisable to let a lawyer see it first. This way, you will have the comfort of knowing you are doing it right, and that you have counsel in case of any legal problems along the way.

One of the things proper wholesale real estate contracts add is the phrase “and/or assigns” next to your name. This clause will give you the authority to sell the property or assign the property to another buyer.

You do need to disclose this to the seller and explain the clause if needed. Assure them that they will still get the amount you both agreed upon, but it gives you deal flexibility down the road.

3. Submit The Contract

Depending on your state’s laws, you need to submit your real estate assignment contract to a title company, or a closing attorney, for a title search. These are independent parties that look into the history of a property, seeing that there are no liens attached to the title. They then sign off on the validity of the contract.

4. Assign The Contract

Finding your buyer, similar to finding a seller, requires proper segmentation. When searching for buyers, investors should exercise several avenues, including online marketing, listing websites, or networking groups. In the real estate industry, this process is called building a buyer’s list, and it is a crucial step to finding success in assigning contracts.

Once you have found a buyer (hopefully from your ever-growing buyer’s list), ensure your contract includes language that covers earnest money to be paid upfront. This grants you protection against a possible breach of contract. This also assures you that you will profit, whether the transaction closes or not, as earnest money is non-refundable. How much it is depends on you, as long as it is properly justified.

5. Collect The Fee

Your profit from a deal of this kind comes from both your assignment fee, as well as the difference between the agreed-upon value and how much you sell it to the buyer. If you and the seller decide you will buy the property for $75,000 and sell it for $80,000 to the buyer, you profit $5,000. The deal is closed once the buyer pays the full $80,000.

Assignment of Contract Pros

For many investors, the most attractive benefit of an assignment of contract is the ability to profit without ever purchasing a property. This is often what attracts people to start wholesaling, as it allows many to learn the ropes of real estate with relatively low stakes. An assignment fee can either be determined as a percentage of the purchase price or as a set amount determined by the wholesaler. A standard fee is around $5,000 per contract.

The profit potential is not the only positive associated with an assignment of contract. Investors also benefit from not being added to the title chain, which can greatly reduce the costs and timeline associated with a deal. This benefit can even transfer to the seller and end buyer, as they get to avoid paying a real estate agent fee by opting for an assignment of contract. Compared to a double close (another popular wholesaling strategy), investors can avoid two sets of closing costs. All of these pros can positively impact an investor’s bottom line, making this a highly desirable exit strategy.

Assignment of Contract Cons

Although there are numerous perks to an assignment of contract, there are a few downsides to be aware of before searching for your first wholesale deal. Namely, working with buyers and sellers who may not be familiar with wholesaling can be challenging. Investors need to be prepared to familiarize newcomers with the process and be ready to answer any questions. Occasionally, sellers will purposely not accept an assignment of contract situation. Investors should occasionally expect this, as to not get discouraged.

Another obstacle wholesalers may face when working with an assignment of contract is in cases where the end buyer wants to back out. This can happen if the buyer is not comfortable paying the assignment fee, or if they don’t have owner’s rights until the contract is fully assigned. The best way to protect yourself from situations like this is to form a reliable buyer’s list and be upfront with all of the information. It is always recommended to develop a solid contract as well.

Know that not all properties can be wholesaled, for example HUD houses. In these cases, there are often anti-assigned clauses preventing wholesalers from getting involved. Make sure you know how to identify these properties so you don’t waste your time. Keep in mind that while there are cons to this real estate exit strategy, the right preparation can help investors avoid any big challenges.

Assignment of Contract Template

If you decide to pursue a career wholesaling real estate, then you’ll want the tools that will make your life as easy as possible. The good news is that there are plenty of real estate tools and templates at your disposal so that you don’t have to reinvent the wheel! For instance, here is an assignment of contract template that you can use when you strike your first deal.

As with any part of the real estate investing trade, no single aspect will lead to success. However, understanding how a real estate assignment of contract works is vital for this business. When you comprehend the many layers of how contracts are assigned—and how wholesaling works from beginning to end—you’ll be a more informed, educated, and successful investor.

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• Assigning an Agreement of Purchase and Sale (Prior to Closing)
• Marty's Musings

By   Martin Rumack

September 3, 2016

What is an Assignment of an Agreement of Purchase and sale?

At its essence, an Assignment of an Agreement of Purchase and Sale – informally known as “flipping a home” – is a simple concept:  A buyer of a new home allows someone else to take over the purchase contract, which allows that person to buy that same home him or herself.   

More specifically, the original buyer enters into a formal Agreement of Purchase and Sale with a Builder, and then allows another person – who we will call the “new buyer” – to step into his or her shoes through what is legally known as an “Assignment” of that original Agreement or Offer to buy.  The new buyer pays the original buyer a higher price than what was set out in that original Agreement, with the difference begin the original buyer’s profit. All of this takes place after the original buyer has agreed to buy from the Builder, but  before the deal closes ; the original buyer never takes title to the property.   

This arises primarily with homes: For newly-built homes with typically long closing dates (e.g. often 18 months or more), an Assignment is particularly attractive in situations where the Builder has already sold all of the units in the development early on, but where there is still demand for soon-to-be-completed homes and new condominium units in the development.  The assignment of a new condominium unit is also interesting for similar reasons, although the time frame may be significantly longer depending on when the assignment occurs.  This puts the original buyer in position to make a profit by inflating the new price well above what he or she agreed to pay the Builder in the first place.   

And what is the benefit to the new buyer?  There can be several:

• The new buyer may be able to buy into a desirable neighbourhood at a time when there are no more units available to be purchased directly from the Builder;
• Even taking the original buyer’s profit into account, the assignment may give the new buyer a price advantage over other properties that are currently on the market; and
• Depending on the timing of the assignment, the new buyer may be position to choose finishes and make minor changes to the yet-to-be-built home.

Whatever the respective motivations of the original and new buyer, the assignment of an Agreement of Purchase and Sale has many specific features – and just as many potential pitfalls.  What follows is a discussion of some of the key points.

When Can An Agreement of Purchase and Sale Be Assigned?

Unlike the standard Toronto Real Estate Board (TREB) or Ontario Real Estate Association (OREA) agreements, many Builders’ own ( i.e.  customized) Agreements of Purchase and Sale contain a clause that generally prohibits the assignment of the contract outright – or else allows it only certain very strict conditions and in exchange for a significant fee payable to the Builder.     

In fact, the vast majority of new home or condominium-purchase agreements do not allow the original buyer to assign the contract to someone else and stipulate that any attempt by the buyer to do so, or to list the home for sale on the Multiple Listing Service (MLS) or otherwise, or else list the property for rent, will put the original buyer in breach of the Agreement.   This triggers the Builder’s right, with notice, to terminate the original Agreement, keep the original buyer’s deposit, and seek additional damages from him or her.  (And in most cases, the original buyer’s Agreement is “dead”;  i.e.  he or she cannot go back and try to complete the transaction as if no assignment had taken place).

All of this means that anyone who has agreed to purchase a home from a Builder should give careful consideration to, and should seek legal advice prior to signing the Agreement, or in the case of condominium units during the 10-day cooling-off period in order to determine whether it’s possible to assign the Agreement in the first place.

This in turn involves a careful review of the clauses in that Agreement.

Typical (and Not-So-Typical) Provisions:

As a practical matter, there are as many variations in these types of provisions as there are Builders.    

Many Agreements of Purchase and Sale will include a largely-standard “No Assignment” clause, which disentitles the original buyer from “directly or indirectly” taking any steps to “lease, list for sale, advertise for sale, assign, convey, sell, transfer or otherwise dispose of” the property or any interest in it.     

A potential exception – and this is important – arises if the Builder gives  prior written consent , although in the more draconian version of these kinds of contract, that consent may be “unreasonably and arbitrarily withheld” by the Builder, essentially on its whim.   In other words, the buyer is not allowed to deal with the property,  unless  the Builder pre-approves it in writing, but in many cases the Builder has no obligation to give that approval and may withhold it for any reason whatsoever, including unreasonable and arbitrary ones.

(With that said, the “No Assignment” clause in some Agreements will allow for express exceptions or situations where the Builder will not withhold consent, for example:  a) Assignments made to a member of the original buyer’s immediate family; or b) where the Builder has determined that a sufficient and satisfactory percentage of the available units have already been sold).

The bottom line is that the basic clause in an Agreement of Purchase and Sale may or may not allow for the assignment of the Agreement to a new buyer, and if it is allowed, it will be subject to specified conditions such as obtaining the Builder’s written consent.  Most Agreements will embellish this basic clause by adding further written stipulations such as:

• Having both the original buyer and the new buyer sign an Assignment Agreement that has been drafted by the Builder;
• Mandating the original buyer will not assign the Agreement until the Builder has managed to sell a certain percentage of the units in the overall development (e.g. 85 or 90%), and even then it must be with the Builder’s written consent as usual;
• Requiring the original buyer to pay a fee to the Builder of (for example) $5,000 plus taxes as part of obtaining the Builder’s consent to the assignment;
• Requiring the original buyer to pay another fee plus taxes to the Builder’s lawyer (ostensibly as a sort of “legal processing fee”);
• Getting the pre-approval of any lending institution or mortgagee that is providing funding to the Builder for construction or otherwise;
• Assuming the Builder agrees to the assignment in the first place, prohibiting any further assignments of the offer by the new buyer to any subsequent party;
• Confirming that the breach of any of the original buyer’s promises in relation to how and when an assignment can occur will be considered a breach of the whole agreement (and one that cannot be remedied); and
• Requiring the original buyer to confirm in writing that the property is not being purchased for short-term speculative purposes.
• Note that even if the Agreement of Purchase and Sale does not expressly allow or provide for it in writing, some Builders will permit an original buyer to make an assignment nonetheless.  This is because it is always in the Builder’s discretion to give up (usually for a fee) its right to technically insist on the purchase going ahead with the original buyer.

Getting the Builder’s Consent

It’s important to remember that, initially, the original buyer and the Builder had a valid legal contract in place that obliged the buyer to purchase a home or condominium unit from the Builder.    That original buyer, for whatever reason – whether it’s a change of circumstances (such as a change in a marital situation, job transfer to another city, province or country; birth of children resulting in a home/condominium unit being too small for the buyer), cold feet, or simply the desire to make a profit – has subsequently decided to “sell” that right to buy to the new buyer.    

To protect the Builder, the Assignment will contain clauses that are designed to safeguard the Builder’s rights.  The most important one is that, as discussed, the Builder must give its written consent to the Assignment.  This will often involve specific Builder-imposed requirements, fees and forms which must be completed.

Once consent has been obtained, there may be additional restrictions on the manner in which the original owner can market the property.  For example, some Builders will insist that the property is not to be listed on MLS (where it may be competing with the Builder’s own listings for still-unsold home and units in the same development); if the original owner does so nonetheless, it will be tantamount to a breach of the Agreement of Purchase and Sale which could entitle the Builder to damages, or rescission of the Agreement of the Purchase and Sale while retaining the deposits paid, as well as the monies paid for extras.

However, aside from any marketing / advertising restrictions that may be imposed, the original buyer must clearly indicate in any listing that it is an assignment of an Agreement of Purchase and Sale, not merely an ostensible sale from the original buyer.

Continuing Liability After Assignment

One key provisions in the Agreement of Purchase and Sale – and one that is easy to overlook – may significantly impact whether an original buyer will want to assign his or her agreement at all.

Even though the original buyer has essentially transferred his or her right to buy the property to the new buyer, the original buyer is not fully off-the-hook.  Rather, under the terms of the Assignment document, the original buyer can remain liable to go through with the contract if the new buyer does not complete the transaction with the Builder.

This written obligation appears in the original buyer’s Agreement of Purchase and Sale, and is couched in phrases that give the buyer continuing liability for the “covenants, agreements, and obligations” contained the original agreement.  But the net effect is that the original buyer remains fully liable should the agreement between the Builder and the new buyer collapse.  The Agreement may also stipulate that the assignee, meaning the person receiving the benefit of the assignment (i.e. the new buyer) must sign an “assumption covenant” which creates a binding contract between the new buyer and the Builder.

(Incidentally, in contrast some Builder’s agreements quite conveniently allow the Builder itself to freely assign the agreement to any other Builder registered with Tarion, which assignment completely releases the Builder from its obligations.)

The original buyer’s continuing liability under the Assignment Agreement is a major drawback in these types of arrangements.   The original buyer always has to balance the risks and rewards inherent in this scenario.

Documenting the Transaction

Assuming that the assignment of an offer is even permitted by the Builder, then (as with all contracts) it must be documented to reflect and protect the legal right of the parties.

The technical aspects of an assignment require more than simply taking the original buyer’s Agreement of Purchase and Sale with the Builder, scratching out his or her name, and replacing it with the new buyer.   (Although, in some cases people do try to “squeeze in” assignment-of-offer terminology into a new Agreement of Purchase and Sale made out in the new buyer’s name – but this is definitely NOT recommended).

Rather, a properly-documented transaction makes reference to the Agreement of Purchase and Sale between the original buyer and the Builder, but adds a separate document called an “Assignment of Agreement of Purchase and Sale.”  The Ontario Real Estate Association (OREA) provides a standard form that can be used, although in many cases those Builders who permit Assignments will insist that the original buyer and the new buyer use the Builder’s customized assignment forms, rather than the OREA standardized version.

The Specifics of the Deal –Who Pays What?

Recouping the Original Buyer’s Costs

At the point where the Assignment is being negotiated, the original buyer has typically paid a deposit to the Builder, may have pre-paid for certain upgrades and extras, and has a large balance owing.  This means that in the course of striking a deal to achieve the assignment, the original buyer should give some serious thought to the various costs, fees, pre-paid deposits, and tax repercussions of the deal, and how these should be reflected in the price that he or she will want the new buyer to pay under the Assignment Agreement.   The timing of the payment(s) will also be a consideration.

For both original buyer and new buyer who are considering an assignment arrangement, here are some of the questions to ask:

• Does the price to be paid by the new buyer include any fee that the Builder is charging in exchange for the original buyer’s right to assign the Agreement of Purchase and Sale?
• Does it include any deposits paid by the original buyer to the Builder, after the Agreement was signed?  Does it include any interest that has been earned on those deposits?
• Does it clearly state that the new buyer will take over the entire contract, including the adjustments that are to be paid to the Builder on closing?  Or are those adjustments to be split between new and original buyer?
• Does the price include money paid by the original buyer for extras and upgrades?
• Are there any additional deposits that are still owing to the Builder, under the original agreement?
• Who is responsible to pay the additional fee ( i.e.  the Builder-imposed fee) in exchange for the Builder giving consent?  Usually, this will be the original buyer, but the parties may negotiate otherwise.
• Does the new buyer agree to take on responsibility under the original Agreement for making additional deposit payments until the final closing date (which may still be months or even years away)?
• Does the new buyer have a full understanding of the amount of all the adjustments that must be paid to the Builder pursuant to the original Agreement?
• If the original buyer has negotiated any special financial incentives into the Agreement of Purchase and Sale that has been reached with the Builder, have these been addressed in terms of whether the new buyer will receive the benefit of them?

In any case, the final purchase price payable from the new buyer to the original buyer will typically be made up of:

• The outstanding balance owed to the Builder by the original buyer, that will now be payable by the new buyer;
• The total deposits already paid by the original buyer to the Builder;
• The total payments already paid by the original buyer to the Builder for any upgrades, extras, etc.; and
• The profit that the original buyer stands to make in the deal.

Deposits, and Interest on Deposits

The treatment of deposits, and the interest they may have earned, merits a brief separate discussion.

Under virtually all Agreements of Purchase and Sale with Builders, the original buyer will be required to pay a series of deposits to the Builder, starting with the initial deposit paid when the Agreement is signed, and on a set payment schedule thereafter.   The total of those deposits can be significant.

Once the Agreement has been assigned to the new buyer, how those deposits are treated will form part of the negotiations.  Typically, the original buyer will get those deposits back from the new buyer as part of the overall purchase price of the assignment transaction; he or she will usually receive them at the time the assignment agreement is entered into and the Builder has consented to the assignment.

The potential problem with an Assignment Agreement is financing. The original buyer will want his deposit funds returned before closing, but if the new buyer does not have funds on-hand, he or she may find that financing is very difficult to obtain because banks do not advance mortgage funds at the time an Assignment Agreement is entered into; rather, the financial institution will provide funds only on final closing.  This can serve as a roadblock to the new buyer’s ability to repay the deposits and potentially to embark on the transaction at all.

The question of who is entitled to the Interest on any deposits pre-paid to the Builder is also a topic for the original and new buyers to discuss.    In many cases, the interest will be only a small amount (if any) and may be credited to the new buyer, rather than the original one.  However, in cases where the original buyer has paid significant deposits over time, and where larger interest amounts have accrued, the parties may want to negotiate a different outcome.

Land Transfer Tax

Land Transfer Tax is also an important consideration in Assignment Agreement arrangements.

When negotiating the deal, the original buyer and the new buyer must discuss the structure of the deal between them, to ascertain the exact selling price on which the Land Transfer Tax (and any Municipal Land Transfer Tax) should be payable  i.e . whether it is the original buyer’s price with the Builder (net of HST and the HST New Housing Rebate, which is discussed below), or whether it’s the newly-inflated price being paid by the new buyer under the Assignment.

Generally speaking, it will be the latter, although in some assignment arrangements the parties have attempted to structure it so that they pay the Land Transfer Tax based on the lower initial price asked by the Builder, while taking the position that difference between that and the increased price is merely the “fee” paid to acquire the original Agreement of Purchase and Sale entered into with the Builder (thus avoiding having the tax calculated on the higher sale price).

In any case, once the Assignment Agreement is reached, it will be the new buyer who is obliged to pay Land Transfer Tax and any Municipal Land Transfer Tax on closing, not the original buyer.

HST and the HST New Housing Rebate

The issue of how HST is to be treated in an assignment scenario is a crucial one, but is fraught with pitfalls.

The first issue is how HST on the transaction should be calculated.   Because the new buyer’s price will inevitably be higher than the one the original buyer agreed to pay to the Builder, there is an important issue as to whether the difference – meaning the original buyer’s profit – should be subject to HST (and if so, who will pay it in the transaction).

This determination hinges on whether the assignment is a “taxable supply” under the tax legislation, and on whether the original buyer can be considered or deemed a so-called “builder” of the home for HST purposes.    This, in turn, involves a number of complex legal concepts and factual findings – including the intentions of the original buyer as to whether the home is going to be a primary residence.

Next, there is the issue of the HST New Housing Rebate.   In a typical scenario, the original buyer may have been entitled to the HST New Housing Rebate, based on meeting numerous qualifying requirements and stipulations. However, once he or she assigns the Agreement, that eligibility is obviously lost because he or she is no longer taking title to the home on closing.   Only one HST New Housing Rebate application per dwelling can be filed.

But once there has been an assignment, it is the new buyer’s circumstances that will determine whether the opportunity for an HST Rebate exists.   He or she will have to meet the stipulated legislated requirements, and may either apply directly to the Canada Revenue Agency (CRA), or arrange with the Builder to have the rebate amount credited right at closing.

(Note that the new buyer may want to take steps to protect his or her position in this regard.  For example, when negotiating the Assignment Agreement, the new buyer should make the agreement conditional on receiving written confirmation from the Builder that any HST New Housing Rebate will be credited to him or her on closing (assuming that the qualifying requirements are otherwise met).    Otherwise, if this commitment is not in writing then the Builder, being entitled to exercise its discretion on whether to credit the buyer with the rebate amount on Final Closing, can withhold it and force the new buyer to apply to CRA directly after closing.  Obtaining this commitment in writing is especially important given the likely lack of prior dealing between the Builder and the new buyer.

Other Things To Consider

Who is Responsible for the Documentation?

In addition to ascertaining whether the original buyer or the new buyer will pay for certain items, it is also important to determine – in advance – which of them will take care of arranging the documentation.  The questions to ask:

• Who will prepare the documents needed to achieve the Assignment?  And who will bear the cost?
• Will the Builder’s lawyer prepare the Builder’s needed consent to the Assignment?
• Since the new buyer cannot renegotiate any of the provisions of the Agreement that the original buyer entered into with the Builder, are any of those terms objectionable, and if so, how will they be resolved and who will bear the cost?

As discussed, the Assignment Agreement will be conditional on the Builder giving its consent.  From the new buyer’s standpoint, it should also be made conditional on him or her giving close review to the original Agreement of Purchase and Sale (as signed by the original buyer), the Assignment Agreement, as well as any amendments, waivers, notices (and for condominium purchases, the Disclosure Statement) etc.  If for no other reason, it will give the new buyer a chance to consider the specific list of adjustments for which he or she will be responsible to pay on closing.  Needless to say, this review should be undertaken with the guidance of an experienced lawyer.

Once the terms of the assignment are settled and the Builder’s written consent has been obtained, the Assignment Agreement must be drafted and is attached to the original Agreement of Purchase and Sale that the original buyer entered into with the Builder.   

Incidentally, the Builder may have certain requirements that must be incorporated into the process and accommodated as well.    For example, the Builder will require the new buyer to provide I.D., and will need confirmation that he or she has the financing required to close in place.

Tarion Registration

When negotiating the assignment arrangement, the original and new buyers must be aware of the impact of the New Home Warranty Program as administered by Tarion, particularly if the home being “flipped” is a condominium unit.

There may be financial issues for the new buyer to work out before the deal can go ahead.

As usual, the transaction may be conditional on financing, which will be arranged on the higher price that the new buyer has agreed to pay.   However, since some mortgage brokers may be unfamiliar with financing an assignment transaction, getting approval for the new buyer’s purchase may be challenging.   This is something that needs to be investigated long before the original buyer and the new buyer start their negotiations in earnest.

A final issue to be negotiated is who is paying the commission with respect to the Assignment Agreement transaction.  This includes consideration of the specific commission rate, together with the details on how and when the commission gets paid.

While an Assignment Agreement can be beneficial to both the original and the new buyer – and even to the Builder (in extra fees) there are many issues to be addressed and negotiate.

As an agent, make sure your client obtains legal advice prior to finalizing any agreement to assign the original Agreement of Purchase and Sale.

Be careful… be aware… and think!”

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Real Estate Assignment Contract

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Last updated April 17th, 2023

• Purchase Agreements »

A real estate assignment contract  allows a real estate buyer to transfer their purchasing rights and responsibilities to someone else before the closing date. Typically, the new buyer pays a fee to the original buyer for the assignment. The form specifies the amount and due date of the assignment fee (if applicable), as well as all other details of the transaction, including the new buyer’s  liabilities , payment requirements , and rights under the purchase agreement . 

Download:  PDF ,  Word (.docx) ,  OpenDocument

REAL ESTATE ASSIGNMENT CONTRACT

1. THE PARTIES . This Real Estate Assignment Contract (“Assignment”) is entered into on [MM/DD/YYYY] (“Effective Date”), by and between:

Assignor : [ASSIGNOR’S NAME] (“Assignor”) with a mailing address of [ADDRESS] , and

Assignee : [ASSIGNEE’S NAME] (“Assignee”) with a mailing address of [ADDRESS] .

The Assignor and Assignee are each referred to herein as a “Party” and, collectively, as the “Parties.”

2. ORIGINAL AGREEMENT . The Assignor is the purchasing party to that certain purchase and sale agreement, dated [MM/DD/YYYY] , for the real property located at [PROPERTY ADDRESS] , and as more particularly described therein (“Original Agreement”).

3. ASSIGNMENT . The Assignor hereby transfers, assigns, and sets over to the Assignee all contractual rights, title, interests, and obligations in and to the Original Agreement on the Effective Date, pursuant to the terms of the Original Agreement

4. CONSIDERATION . For the sum of any dollar amount stipulated herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree to the following: [DESCRIBE PAYMENT OR OTHER CONSIDERATION] .

5. ASSUMPTION . By executing this Assignment, the Assignee accepts and assumes the transfer and ownership of all liabilities, obligations, and claims that currently exist or may in the future regarding the Assignment. As of the Effective Date, the Assignee agrees to comply with and assume all terms, payments, conditions, covenants, and any other duties and obligations as part of this Assignment and those set forth in the Original Agreement.

6. REPRESENTATIONS . The Parties acknowledge that they have a full understanding of the terms of this Assignment. The Assignor further warrants and represents that they own the rights transferred in this Assignment and has prior consent to execute this Assignment under the terms of the Original Agreement or otherwise through the written consent of the selling party under the Original Agreement; in the latter case, the written and signed consent of said party shall be attached to this Assignment. The Parties agree to provide and complete any obligations under this Assignment and the Original Agreement.

Assignor Signature : ___________________ Date:  [MM/DD/YYYY] Print Name: [ASSIGNOR’S NAME]

Assignee Signature : ___________________ Date:  [MM/DD/YYYY] Print Name:  [ASSIGNEE’S NAME]

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10 Essential Things to Know About Real Estate Assignment Sales (for Sellers)

— We take our content seriously. This article was written by a real person at BREL.

What’s an assignment?

An assignment is when a Seller sells their interest in a property before they take possession – in other words, they sell the contract they have with the Builder to a new purchaser. When a Seller assigns a property, they aren’t actually selling the property (because they don’t own it yet) – they are selling their promise to purchase it, along with the rights and obligations of their Agreement of Purchase and Sale contract.  The Buyer of an assignment is essentially stepping into the shoes of the original purchaser.

The original purchaser is considered to be the Assignor; the new Buyer is the Assignee. The Assignee is the one who will complete the final sale with the Builder.

Do assignments only happen with pre-construction condos?

It’s possible to assign any type of property, pre-construction or resale, provided there aren’t restrictions against assignment in the original contract. An assignment allows a Buyer of a any kind of home to sell their interest in that property before they take possession of it.

Why would someone want to assign a condo?

Often with pre-construction sales, there’s a long time lag between when the original contract is entered into, when the Buyer can move in (the interim occupancy period) and the final closing. It’s not uncommon for a Buyer’s circumstances to change during that time…new job out of the city, new husband or wife, new set of twins, etc. What worked for a Buyer’s lifestyle 4 years ago doesn’t always work come closing time.

Another common reason why people want to assign a contract is financial. Sometimes, the original purchaser doesn’t have the funds or can’t get the financing to complete the sale, and it’s cheaper to assign the contract to a new purchaser, than it is to renege on the sale.

Lastly, assignment sales are also common with speculative investors who buy pre-construction properties with no intention of closing on them. In these cases, the investors are banking on quick price appreciation and are eager to lock in a profit now, vs. waiting for the original closing date.

What can be negotiated in an assignment sale?

Because the Assignee is taking over the original purchaser’s contract, they can’t renegotiate the price or terms of the contract with the Builder – they are simply taking over the contract as it already exists, and as you negotiated it.

In most cases, the Assignee will mirror the deposit that you made to the Builder…so if you made a 20% deposit, you can expect the new purchaser to do the same.

Most Sellers of assignments are looking to make a profit, and part of an assignment sale negotiation is agreeing on price. Your real estate agent can guide you on price, which will determine your profit (or loss).

Builder Approval and Fees

Remember that huge legal document you signed when you made an offer to buy a pre-construction condo? It’s time to take it out and actually read it.

Your Agreement of Purchase & Sale stipulated your rights to assign the contract. While most builders allow assignments, there is usually an assignment fee that must be paid to the Builder (we’ve seen everything from $750 to $7,000).

There may be additional requirements as well, the most common being that the Builder has to approve the assignment.

Marketing Restrictions

Most pre-construction Agreements of Purchase & Sale from Toronto Builders do not allow the marketing of an assignment…so while the Builder may give you the right to assign your contract, they restrict you from posting it to the MLS or advertising it online. This makes selling an assignment extremely difficult…if people don’t know it’s available for sale, how they can possibly buy it?

While it may be very tempting to flout the no-marketing rule, BE VERY CAREFUL. Buyers guilty of marketing an assignment against the rules can be considered to have breached the Agreement, and the Builder can cancel your contract and keep your deposit.

We don’t recommend advertising an assignment for sale if it’s against the rules in your contract.

So how the heck can I find a Buyer?

There are REALTORS who specialize in assignment sales and have a database of potential Buyers and investors looking for assignments. If you want to be connected with an agent who knows the ins and outs of assignment sales, get in touch…we know some of the best assignment agents in Toronto.

What are the tax implications of real estate assignment?

Always get tax advice from a certified accountant, not from the internet (lol).

But in general, any profit made from an assignment is taxable (and any loss can be written off). The new Buyer or Assignee will be responsible for paying land transfer taxes and any HST that might be due.

How much does it cost to assign a pre-construction condo?

In addition to the Builder assignment fees, you will likely have to pay a real estate commission (unless you find the Buyer yourself) and legal fees. Because assignments are more complicated, you can expect to pay higher legal fees than you would for a resale property.

How does the closing of an assignment work?

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. On the second closing (between the Builder and the Assignee), the Assignee pays the remaining amount to the Builder (usually with the help of a mortgage), and pays land transfer taxes. Title of the property transfers from the Builder to the Assignee at this point.

I suppose it could be said that there is a third closing too, when the Buyer takes possession of the property but doesn’t yet own it…this is known as the interim occupancy period. The interim occupancy occurs when the unit is ready to be occupied, but not ready to be registered with the city. Interim occupancy periods in Toronto range from a few months to a few years. During the interim occupancy period, the Buyer occupies the unit and pays the Builder an amount roughly equal to what their mortgage payment + condo fees + taxes would be. The timing of the assignment will dictate who completes the interim occupancy.

Assignments vs. Resale: Which is Better?

We often get calls from people who are debating whether they should assign a condo they bought, or wait for the building to register and then sell it as a typical resale condo.

Pros of Assigning vs. Waiting

• Get your deposit back and lock in your profit sooner
• Avoid paying land transfer taxes
• Avoid paying HST
• Maximize your return if prices are declining and you expect them to continue to decline
• Lifestyle – sometimes it just makes sense to move on

Cons of Assigning vs Waiting

• The pool of Buyers for assignment sales is much smaller than the pool of Buyers for resale properties, which could result in the sale taking a long time, getting a lower price than you would if you waited, or both.
• Marketing restrictions are annoying and reduce the chances of finding a Buyer
• Price – What is market value? If the condo building hasn’t registered and there haven’t been any resales yet, it can be difficult to determine how much the property is now worth. Assignment sales tend to sell for less than resale.
• Assignment sales can be complicated, so you want to make sure that you’re working with an agent who is experienced with assignment sales, and a good lawyer.

Still thinking of assignment your condo or house ? Get in touch and we’ll connect you with someone who specializes in assignment sales and can take you through the process.

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Raj Singh says:

What can be things to look for, especially determining market value for an assigned condo? I’m the assignee.

Sydonia Moton says:

Y would u need a lawyer when u buy a assignment property

Gideon Gyohannes says:

Good clear information!

Who pays the assignment fee to the developer? Assignor or Assignee?

Thanks Gideon 416 4591919

Melanie Piche says:

It’s almost always the Seller (though I suppose could be a point of negotiation).

Fiona Rourke says:

If there are 2 names on the agreement and 1 wants to leave and the other wants to remain… does the removing of 1 purchaser constitute an assignment

Brendan Powell says:

An assignment is one way to add or remove people from a contract, but not the only way…and not the simplest. Speak to your lawyer for advice on what makes the most sense for your specific situation. For a straightforward resale purchase you could probably just do an amendment signed by all parties. If it’s a preconstruction purchase with various deposits paid, etc it could be more complicated.

Katerina says:

Depends on the Developer. Some of them remove names via assignments only.

Haroon says:

Is there any difference in transaction process If assigner or seller of a pre constructio condo is a non resident ? Is seller required to get a clearance certificate from cRA to complete the transaction ?

Nathalie says:

Hello , i would like to know the exact steps for reassignment property please.

Amazing info. Thanks team. I may just touch base with you when my property in Stoney Creek is completed in. 2020. I may need to reassign it to someone Thanks

Victoria Bachlowa says:

If an assignor renegs on the deal and refuses to close because they figured out they could get more money and the assignment was already approved by the builder and all conditions fulfilled what can the Assignee do. I have $33,000 dollars in trust in the real estate’s trust fund. They sent me a mutual release which I have not signed. The interim occupancy is Feb. 1 and the closing is schedule for Mar. 1, 2019. I have financing in place, was ready to move in Feb. 1 and I have no where to live.

Definitely talk to your lawyer right away. They’ll want to look at your agreement of purchase and sale and will be able to advise you.

With assignment sales, there are essentially 2 closings: the closing between the Assignor and the Assignee, and the closing between the Assignee and the Builder. With the first closing (the assignment closing) the original purchaser receives their deposit + any profit (or their deposit less any loss) from the Assignee. Can I assume that these closing happen at the same time? I’m not sure how and when I would be paid as the Assignor.

What happens to the deposits or any profits already paid if the developer cancels the project after an assignment?

Hi, Did you get answer to this? I did an assignment sale last year and now the builder is not completing apparently and they are asking for their money back. Can they do that? After legal transactions, the lawyer simply said “the deal didn’t go through”. Apparently builder and the person who assumed the assignment agreed on taking out the deal. What do I have to pay back after it was done a year ago

This is definitely a question for your lawyer – as realtors we are not involved in that part of the transaction. I would expect that just as the builder would have to refund your deposits, you would likely need to do the same…but talk to your lawyer. As to whether the builder can cancel a project, yes they always reserve that right (but the details of how and under what circumstances would be in your original purchase agreement). It’s one of the annoying risks in buying preconstruction!

I completed the sale of my assignment in Dec 2015 however the CRA says I should be reporting the capital income in 2016 when the assignee closed his deal with the developer in July 2016. That makes no sense to me since I got all my money in Dec 2015. Can you supply any clarification on that CRA policy please?

You’d have to talk to the CRA or an accountant – we’re real estate agents,so we can’t give tax advice.

Hassan says:

Hello, You said that there are two closings. The first one between the assignor and the assignee and the second one between the builder and the new buyer (assignee). My question is that in the first closing does the assignee have to pay the assignor the deposit they have paid and any profit in cash or will the bank add this to the assignee’s mortgage?

The person doing the assigning usually gets their money at the first closing.

Kathy says:

What is the typical real estate free to assign your contract with the builder ?

Hi Kathy While we do few assignments (as they are rarely successful, and builders do not make it easy), in past we have charged more or less the same as we do for a typical resale listing. While there are elements to assignments that should be easier than a resale (eg staging), many other aspects of assignments are much MORE time-consuming, and the risk much higher since attempts to find a buyer for assignments are often unsuccessful. It’s also important to note that due to the extra complication, lawyer’s fees to assign are typically higher than resale as well–although more $ for the purchase side vs the sale side.

Mitul Patel says:

If assignee has paid small amount of deposit plus the original 25% deposit that the assignor has paid to the builder and gets the Keys to the unit since interim possession has been completed, when the condo registration is done and assignee is getting mortgage from the Bank or Pays the remaining balance to the Builder using his savings and decides not to pay the Balance of the Profit amount to Assignor, what are the possibilities in this kind of scenario?

You’d need to talk to a lawyer to find out the options.

David says:

How much exactly do brokers get paid at sale of Assignment? i.e. Would the broker’s fee be a % of your assignment selling price or your home’s selling price? I’m really looking for a clear answer.

I am using this website’s calculator associated with selling your home in Ontario. But there is no information on selling assignments. https://wowa.ca/calculators/commission-calculator-ontario

Realtors set their own commission, so there is no set fee- that website is likely the commission that that agent offers. We often see commissions of 4-5% for assignments. The fee is a % of the price of the assignment – for example, you originally bought for $500K; you’re now assigning for $600K – commission would be payable on the $600K.

Candace says:

Question: if i bought a pre construction condo, can i sell it as soon as it closes or do i have to live in it for 1 year after closing in order to avoid capital gains taxes?

Or does the 1 year start as soon as you move in?

I would suggest you talk to your accountant re: HST credit implications and capital gains, but if you sell it for more than you paid for it, capital gains usually apply.

You mention avoid paying HST when you assign your property. What is the HST based on? It’s not a commercial property that you would pay HST. Explain. Thanks.

HST and assignments are complex and this question is best answered specific to your situation by your accountant and real estate lawyer. In some cases HST is applicable on assignment profits – more details can be found on the CRA website here:

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/gi-120/assignment-a-purchase-sale-agreement-a-new-house-condominium-unit.html

If you are a podcast listener, the true condos podcast is also a great resource.

https://truecondos.com/cra-cracking-down-on-assignments/

heres one for your comment, purchase pre construction from builder beginning of 2021, to be finished end of 2021, (semi detached) here we are end of 2022, both units are now ready. Had one assigned but because builder didnt accept within certain time frame(they also had a 90 day clause wherein we couldnt assign prior to 90 less firm closing date (WHICH MOVED 4 TIMES). Anyrate now we have a new assinor but the builder says we are in default from the first one and wants 50k to do the assignment (the agreement lists the possibility of assigning for 12k) Also this deal would include us loosing our whole deposit and paying the 12k(plus fees) would be in addition too the 130k we are already loosing. The second property we are trying to close but interest rates are riducous, together with closing costs(currently mortgage company is asking that my wife be added to that one, afraid to even ask this builder. Any advice on how to deal with this asshole greedy builder? We are simply asking for assignment as per contract and a small extension for the new buyer(week or two) Appreciate any advice. Thank you

Dealing with builders/developers can be extremely painful, much worse than resale transactions in our experience. Their contracts are written to protect THEM. Unfortunately all I can say is follow the advice of your lawyer.

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What is a Purchase and Sale Agreement?

Reading Time: 4 minutes

When it comes to a real estate transaction like buying a home , a lot of important paperwork needs to be completed before you can call a home yours. One of these important pieces of paperwork is a purchase and sale agreement. 

To help you navigate this document, we’ll go over what a purchase and sale agreement is, what makes up the agreement, and what happens after. So whether you’re selling a home in Boston, MA, or buying a home in Dallas, TX , read on to learn more about what goes into a purchase and sale agreement during a real estate transaction.

What is a purchase and sale agreement?

A purchase and sale agreement, PSA or P&S for short, is the document received after mutual acceptance on an offer. It states the final sale price and all terms of the purchase in a real estate transaction. A PSA can vary by state. They typically consist of the final sale price, earnest money details, closing date, title information, and contingencies. T imelines and anything else the buyer/seller requests will be gone through in the agreement.

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Either the buyer’s agent or the real estate attorney will draft up the contract. This depends on what state the home resides in. In states where escrow agents handle the closing process, the buyer’s agent is responsible for preparing the PSA document. In areas where attorneys handle the closing, the attorneys will prepare the document. The buyer, seller, and their respective agents will sign the document. 

What does the PSA consist of?

The specific items in this contract vary by state, but will almost always include the following. 

1) Final sale price: This is the purchase price agreed upon by the buyer and seller outlined in a purchase and sale agreement. Note that this price might change during negotiations before the closing date. For instance, if the buyer’s home inspection turns up a problem with the home, the buyer may be able to negotiate a reduced purchase price.

2) Earnest money details: The purchase and sale agreement will include information on the earnest money deposit, such as the dollar amount and instructions for making the deposit. In most areas, the buyer will need to deposit a personal or cashier’s check which is held with a neutral third party. These third-party companies can be escrow companies, title companies, or law firms. They will need to deposit within one to three days of mutual acceptance.

3) Closing date: On your closing date, the purchase will be completed, the transfer of property will be recorded with the local government, and the seller will receive the money for their home. Usually, you’ll sign all the necessary paperwork a day or two before your closing date. Your closing date may change, however, due to unforeseen events, such as your financial paperwork taking longer than expected.

4) Title insurance company: Information about your title company will be included in the purchase and sale agreement. As the buyer, you always have the right to select a title company. You should talk to your agent or attorney if you have any questions about choosing a title company.

5) Title condition: The purchase and sale agreement will include an agreement that the seller will provide a clear or marketable title of ownership to the buyer. 

6) Contingencies: Contingencies are conditions that must be met in order for the home purchase to be completed. A   buyer   or   seller   may   cancel   a   sale   if one of the contingencies can’t be met . Here are some examples of common contingencies .

Common Contingencies

• Inspection contingency: This contingency allows the buyer to have the home inspected before going ahead with the purchase. If the inspection turns up a problem with the home, the buyer can renegotiate with the seller. The seller may repair or offer a credit for the problem. If the problem is severe, the buyer can back out of the purchase without losing the earnest money deposit.
• Financing contingency: This contingency requires the buyer to get approved for a mortgage before making the purchase. If the buyer is unable to get mortgage approval they can back out of the deal.
• Title contingency: This contingency gives the buyer the right to review the home’s title for problems or conflicting claims of ownership. The buyer can require the seller to satisfy any problems with the title before the closing date. This contingency allows the buyer to walk away from the deal.
• Appraisal contingency: This contingency allows the buyer to back out of the deal if the home appraisal reveals that the home is not worth as much as the buyer intended to borrow and pay for it.
• Home sale contingency: Less common than the other contingencies listed above, this contingency gives the buyer the right to back out of the deal if she is unable to sell her current home.
• Addendum: An addendum, also known as a rider, is any additional request from the buyer to the seller that is not included in the actual PSA document. Examples may include a buyer’s request that the seller pays part of the buyer’s closing costs. Another example is that the seller includes appliances or furniture not originally included in the home’s sale price.

Purchase and sale agreement vs. purchase agreement

The purchase and sale agreement may sound similar to the purchase agreement, but they are not the same. A PSA outlines the specific terms in the transaction between the buyer and seller. Both parties sign the final paperwork for the sale of the home called the purchase agreement. Both parties will move forward with the final paperwork of the sale of the home after signing the PSA. After signing the purchase agreement the sale is complete. 

What happens after the PSA?

The buyer and seller  will   sign  the  PSA and the earnest money  will   be  deposited,  and then  the buyer and third-party companies will begin the home inspections, title searches, loan agreements, and anything else outlined in the agreement that needs to be checked . It can take several weeks for the finalization of the purchase and sale agreement. This is because there might be problems that arise during an inspection. The buyer will sign the purchase agreement at closing. 

Ana is part of the content marketing team and enjoys writing about home improvement and life & style. Her dream house would be a Mediterranean style home featuring expansive windows.

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What is a Condo Assignment Sale? — Everything You Need to Know

What is a condo assignment sale, when does it occur.

Condo assignment sales occur before the final occupancy or closing date of a new construction property. An assignment sale occurs before the final closing of the property between the original purchaser (Assignor)  and the builder. 

As a new purchaser of an agreement, you are going to assume everything that the original purchaser agreed to in their original contract. For this reason, it is important to appoint a lawyer by your side to go over two important set of agreements. The first one is the agreement between the original purchaser and the builder. Lawyer will walk you over red flags or things like closing costs associated to the unit – remember you have to assume these terms. The second piece of agreement the lawyer will look at is the new agreement between the original purchaser (Assignor) and the new purchaser (Assignee) 

Reason for a Condo Assignment Sale

Assignment sales take place with all sort of new construction product such as townhomes, detached homes, condos, stacked townhomes & more. Why do these kinds of sales happen? The most common reason is the original buyer’s circumstances might change and present a reason to list their condo for assignment sale transactions. 

There are many reasons why one would decide to sell their unit on assignment since the gap of purchase time to occupancy is wide and can take 2-7 years depending on what type of property it is. Perhaps they will welcome a new member of their family soon and the condo just isn’t big enough for everyone. Whatever the reason, it isn’t always negative. It is important to work with professionals that can guide you throughout the process of an assignment sale.

Costs of Condo Assignment Sales​

Is selling an assignment better than a regular real estate transaction? Yes. Being the seller (assignor) is known to contain more tax fees than a unit that is already built and you’ve taken title of. As a buyer of an assignment, you do not need to observe such fees and a professional can walk you over your closing costs associated to the transaction. 

Now that you know what is a condo  assignment sale, you can therefore make an informed decision. We get a lot of questions about new condos and whether it’s better to wait or to list them for assignments right away. 

An assignment is better if you’re looking to get your money back sooner rather than later. Assignments will also see that the assignee pays the land transfer taxes and other taxes. Sometimes you can even make a profit on the market value if condo assignments are listed during a real estate boom.

It all sounds great, but selling condo assignments also has its drawbacks. For example, experienced real estate agents know it’s more difficult to sell an assignment property due to a much smaller buyer pool. Most assignment sales cannot be advertised online on platforms such as MLS. 

In most cases,, there are  marketing limitations when it comes to selling an assignment which can hurt your chances of finding a potential buyer

If you are looking for a new home sooner rather than later, an assignment sale offers closer occupancy dates, unlike purchasing something new that will only be ready in 5 years. In some cases, you may still have a chance to choose your own colours and finishes of the unit

Pros and Cons of Condo Assignment Sales for Buyers​

As a  buyers, you can expect to see advantages such as more options when choices are low. Since assignments are more complex, you typically face less competition on deals whereas in a hot market you may be in a bidding war scenario.

Pros and Cons of Condo Assignment Sales for Sellers​

The pros for assignment sellers are a shorter list compared to the ones for buyers. First of all, sellers can get their money faster and put that amount to good use such as reinvestment. Sellers will not be responsible for carrying costs such as occupancy fees or go ahead with the mortgage payments or other closing fees.

At times, the seller can also play the market and list the unit for higher than the original purchase price and make a profit. However, more often than not, sellers will have a harder time seeing offers due to marketing restrictions and a smaller buyer pool.

Since the process for assignments is also much more intricate, it will be difficult to find a  real estate professional out there that is familiar with this type of sale. For this reason, an assignment transaction can come with more complexity and would require additional knowledge. 

Now that you know what is a condo assignment sale, you can decide if it’s the route you want to take as a buyer or seller. There are more advantages from a buyer’s standpoint, but there are undeniable pros for sellers such as getting your money back faster and avoiding closing costs.

Looking for assignment sales? Here are some top options on the market:

• Stockyards District Residences
• Whitehaus Condos
• St. Lawrence Condos
• Westwood Gardens
• One Burrard Place
• Cascade City
• ALPHA at LUMINA Brentwood
• University District
• Sun Towers 1
• Blue Diamond Condos
• Theatre District Tower
• Go2 Condominiums
• 8 Cumberland Condos
• Artworks Tower
• 859 West Condos
• Park Boulevard
• 567 Clarke + Como
• The Maverick
• Etoile Condos
• Concord Brentwood Hillside West Tower 1
• Canvas Condos
• Mississauga Square Condos
• Mirabella Luxury Condos
• Wesley Tower
• Home (Power + Adelaide)
• Oro at the Edge
• 5 North Condos
• Gore Park Lofts
• Casa Di Torre
• in.DE Condos
• Mobilio Condos
• One Crosstown
• Cypress at Pinnacle
• The Cardiff
• Social Condos
• Millhouse Condos
• Cedar Creek
• King George Hub at the Stations
• Sussex Metrotown
• Sweetlife Condos
• 7 on the Park
• Saturday in Downsview Park
• Oakvillage Condos
• Sugar Wharf Condos
• Verdé Condo
• Liberty Central by the Lake
• Lighthouse Tower
• Scala Condos
• AVRO Condos
• Perla Towers
• DuEast Condos
• Vita on the Lake
• Playground Condo
• Junction House Condos
• Downsview Park
• Peter & Adelaide Condos
• 75 on the Esplanade
• Panda Condo
• Wish Condos
• Park Avenue Place
• 159SW condos
• Riverview Condos
• Distrikt Trailside Condos
• Lake & Town
• B-Line Condos
• Lumina Condos
• Nobu Residences Toronto
• Yonge + Rich
• The West at Stationwest
• Transit City 4 Condos
• 1 Yorkville
• Oak and Co. Condos
• Four Sixteen Condos
• Evermore Condos
• Transit City Condos
• Gallery Square Condos
• Auberge on the Park
• M City Condos 2
• Empire Phoenix Condos
• Mirabella Condos

Pages are worth reading: 

• The boom of condos in Toronto
• The assignment sale when buying condos
• The assignment sale in Toronto
• The great apps for real estate agents  

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Legal Templates

Home Business Assignment Agreement

Assignment Agreement Template

Use our assignment agreement to transfer contractual obligations.

Updated February 1, 2024 Reviewed by Brooke Davis

An assignment agreement is a legal document that transfers rights, responsibilities, and benefits from one party (the “assignor”) to another (the “assignee”). You can use it to reassign debt, real estate, intellectual property, leases, insurance policies, and government contracts.

What Is an Assignment Agreement?

What to include in an assignment agreement, how to assign a contract, how to write an assignment agreement, assignment agreement sample.

Partnership Interest

An assignment agreement effectively transfers the rights and obligations of a person or entity under an initial contract to another. The original party is the assignor, and the assignee takes on the contract’s duties and benefits.

It’s often a requirement to let the other party in the original deal know the contract is being transferred. It’s essential to create this form thoughtfully, as a poorly written assignment agreement may leave the assignor obligated to certain aspects of the deal.

The most common use of an assignment agreement occurs when the assignor no longer can or wants to continue with a contract. Instead of leaving the initial party or breaking the agreement, the assignor can transfer the contract to another individual or entity.

For example, imagine a small residential trash collection service plans to close its operations. Before it closes, the business brokers a deal to send its accounts to a curbside pickup company providing similar services. After notifying account holders, the latter company continues the service while receiving payment.

Create a thorough assignment agreement by including the following information:

• Effective Date:  The document must indicate when the transfer of rights and obligations occurs.
• Parties:  Include the full name and address of the assignor, assignee, and obligor (if required).
• Assignment:  Provide details that identify the original contract being assigned.
• Third-Party Approval: If the initial contract requires the approval of the obligor, note the date the approval was received.
• Signatures:  Both parties must sign and date the printed assignment contract template once completed. If a notary is required, wait until you are in the presence of the official and present identification before signing. Failure to do so may result in having to redo the assignment contract.

Review the Contract Terms

Carefully review the terms of the existing contract. Some contracts may have specific provisions regarding assignment. Check for any restrictions or requirements related to assigning the contract.

Check for Anti-Assignment Clauses

Some contracts include anti-assignment clauses that prohibit or restrict the ability to assign the contract without the consent of the other party. If there’s such a clause, you may need the consent of the original parties to proceed.

Determine Assignability

Ensure that the contract is assignable. Some contracts, especially those involving personal services or unique skills, may not be assignable without the other party’s agreement.

Get Consent from the Other Party (if Required)

If the contract includes an anti-assignment clause or requires consent for assignment, seek written consent from the other party. This can often be done through a formal amendment to the contract.

Prepare an Assignment Agreement

Draft an assignment agreement that clearly outlines the transfer of rights and obligations from the assignor (the party assigning the contract) to the assignee (the party receiving the assignment). Include details such as the names of the parties, the effective date of the assignment, and the specific rights and obligations being transferred.

Include Original Contract Information

Attach a copy of the original contract or reference its key terms in the assignment agreement. This helps in clearly identifying the contract being assigned.

Execution of the Assignment Agreement

Both the assignor and assignee should sign the assignment agreement. Signatures should be notarized if required by the contract or local laws.

Notice to the Other Party

Provide notice of the assignment to the non-assigning party. This can be done formally through a letter or as specified in the contract.

File the Assignment

File the assignment agreement with the appropriate parties or entities as required. This may include filing with the original contracting party or relevant government authorities.

Communicate with Third Parties

Inform any relevant third parties, such as suppliers, customers, or service providers, about the assignment to ensure a smooth transition.

Keep Copies for Records

Keep copies of the assignment agreement, original contract, and any related communications for your records.

Here’s a list of steps on how to write an assignment agreement:

Step 1 – List the Assignor’s and Assignee’s Details

List all of the pertinent information regarding the parties involved in the transfer. This information includes their full names, addresses, phone numbers, and other relevant contact information.

This step clarifies who’s transferring the initial contract and who will take on its responsibilities.

Step 2 – Provide Original Contract Information

Describing and identifying the contract that is effectively being reassigned is essential. This step avoids any confusion after the transfer has been completed.

Step 3 – State the Consideration

Provide accurate information regarding the amount the assignee pays to assume the contract. This figure should include taxes and any relevant peripheral expenses. If the assignee will pay the consideration over a period, indicate the method and installments.

Step 4 – Provide Any Terms and Conditions

The terms and conditions of any agreement are crucial to a smooth transaction. You must cover issues such as dispute resolution, governing law, obligor approval, and any relevant clauses.

Step 5 – Obtain Signatures

Both parties must sign the agreement to ensure it is legally binding and that they have read and understood the contract. If a notary is required, wait to sign off in their presence.

Related Documents

• Purchase Agreement : Outlines the terms and conditions of an item sale.
• Business Contract : An agreement in which each party agrees to an exchange, typically involving money, goods, or services.
• Lease/Rental Agreement : A lease agreement is a written document that officially recognizes a legally binding relationship between two parties -- a landlord and a tenant.
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Assignments of Agreement of Purchase and Sale – An Overview

What is an assignment.

The assignment of an agreement of purchase and sale is a legal transaction whereby a party to a contract transfers their rights and obligations in that agreement and associated property, to another party. It is commonly used in Ontario real estate transactions as a means of selling a property before the original purchase agreement is completed. Assignments are often pursued by buyers or investors who wish to purchase a property for a lower price than the original purchase price or who seek to benefit from a changing market or financial circumstances. In an assignment, the original purchaser (the assignor) sells their rights and benefits under the agreement to a third party (the assignee) for a negotiated price.

Benefits, Disadvantages, and Uses of an Assignment Transaction

There are several benefits to pursuing an assignment. For the assignor, it may provide an opportunity to sell the property at a profit without having to close on the purchase themselves. It may also allow them to avoid closing costs and other fees associated with the purchase. For the assignee, an assignment can offer an opportunity to purchase a property at a lower price than the original purchase price, particularly if the market has changed or the original purchaser is in financial distress. However, there are also potential drawbacks to assignments, such as uncertainty regarding the closing date, tax implications, higher than anticipated closing costs and the potential for disputes between parties.

Assignment Process

The assignment process typically involves several steps. First, the assignor must find a willing assignee who is willing to purchase their interest in the property. They may need to advertise the property and assignment (provided this is permitted by the original vendor in a pre-construction transaction) and negotiate a price with the assignee. Once an assignee is found, the parties must draft an assignment agreement that outlines the terms of the assignment, including the purchase price, closing date, obligations of each party and other relevant details. The assignment agreement must be signed by both the assignor and assignee and may need to be registered with the relevant authorities, such as the Land Registry Office. Finally, the assignee assumes the rights and benefits of the original agreement and is responsible for completing the purchase on the closing date. Throughout the assignment process, it’s important to seek legal advice and follow the requirements outlined in the original purchase agreement.

Fees and Default

Assignment agreements generally include an ‘Assignment Fee’ payable by the assignee to the assignor in exchange for the right to acquire the property. It is important to determine when this fee is payable. If any funds are to be released to the assignor prior to the completion of the original transaction, it must be specified. Otherwise, the default is that they are to be held in trust by the assignor’s solicitor, until the completion of the original agreement of purchase and sale.

If a seller defaults on the original agreement (i.e. fails to close the transactions), the assignment becomes null and void. The funds are returned to the assignee, and the assignor is not liable for any expenses or losses incurred therefrom by the assignee. The assignor can commence legal proceedings against the seller for failing to close the transaction, however, the assignee has little to no such legal remedy available, even in the face of changing market conditions.

Other Considerations

On a final note, the tax implications of assignments can be complex, and it’s important for buyers and sellers to seek legal advice before pursuing an assignment. Depending on the circumstances, both the assignor and assignee may be subject to various taxes, such as capital gains tax, HST, or land transfer tax. For example, while the resale of a residential property is naturally not subject to HST and, accordingly, there is no HST payable on the assignment fee, extra steps must be taken to ensure the same result for new-build properties; the assignment agreement must include a provision stating that part of the consideration is attributable to the reimbursement of a deposit paid by the assignee to the builder. As with the Land Transfer Tax, it is payable by the assignment after the completion date of the original transaction, on the aggregate purchase price (including the assignment fee).

Assignment of agreements of purchase and sale are a common tool used in Ontario real estate transactions to transfer property ownership rights and benefits. They can offer benefits such as flexibility and financial gain but also carry risks and challenges. Understanding the legal, financial, and practical implications of assignments is crucial for anyone considering pursuing this approach.

If you have any questions about assignments of agreement of purchase and sale or real estate law generally, please contact  Jonathan at 289-220-3229 or  [email protected]

• Jonathan Dippolito
• 289-220-3229
• (905) 668-9737
• [email protected]

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• Legal Issues

Assigning an Agreement of Purchase and Sale

Martin Rumack | Jul 26, 2016 | 0 comments

At its essence, an assignment of an Agreement of Purchase and Sale – informally known as “flipping a home” – is a simple concept: A buyer of a new home allows someone else to take over the purchase contract, which allows that person to buy the home.

More specifically, the original buyer enters into a formal Agreement of Purchase and Sale with a builder, and then allows another person – who we will call the “new buyer” – to step into his or her shoes through what is legally known as an “assignment” of that original agreement or offer to buy. The new buyer pays the original buyer a higher price than what was set out in that original agreement; the difference is the original buyer’s profit. All of this takes place after the original buyer has agreed to buy from the builder, but before the deal closes; the original buyer never takes title to the property.

This arises primarily with homes: For newly built homes with typically long closing dates (often 18 months or more), an assignment is particularly attractive in situations where the builder has already sold all of the units in the development early on, but where there is still demand for soon-to-be-completed homes and new condominium units in the development.

The assignment of a new condominium unit is also interesting for similar reasons, although the time frame may be significantly longer depending on when the assignment occurs. This puts the original buyer in position to make a profit by inflating the new price well above what he or she agreed to pay the builder in the first place.

What is the benefit to the new buyer? There can be several:

• The new buyer may be able to buy into a desirable neighbourhood at a time when there are no more units available to be purchased directly from the builder;
• Even taking the original buyer’s profit into account, the assignment may give the new buyer a price advantage over other properties that are currently on the market; and
• Depending on the timing of the assignment, the new buyer may be positioned to choose finishes and make minor changes to the yet-to-be-built home.
• Whatever the respective motivations of the original and new buyer, the assignment of an Agreement of Purchase and Sale has many specific features – and just as many potential pitfalls.

When can an agreement of purchase and sale be assigned?

Unlike the standard Ontario Real Estate Association (OREA) agreements, many builders’ own (customized) Agreements of Purchase and Sale contain a clause that generally prohibits the assignment of the contract outright – or else allows it only with strict conditions and in exchange for a significant fee payable to the builder.

In fact, the vast majority of new home or condominium-purchase agreements do not allow the original buyer to assign the contract to someone else and stipulate that any attempt by the buyer to do so, or to list the home for sale on the MLS system or otherwise, or else list the property for rent, will put the original buyer in breach of the agreement. This triggers the builder’s right, with notice, to terminate the original agreement, keep the original buyer’s deposit and seek additional damages from him or her. (And in most cases, the original buyer’s agreement is “dead”; he or she cannot go back and try to complete the transaction as if no assignment had taken place).

All of this means that anyone who has agreed to purchase a home from a builder should give careful consideration to, and should seek legal advice prior to signing the agreement, or in the case of condominium units during the 10-day cooling-off period in order to determine whether it’s possible to assign the agreement in the first place.

This in turn involves a careful review of the clauses in that agreement.

Typical (and not-so-typical) provisions

As a practical matter, there are as many variations in these types of provisions as there are builders.

Many Agreements of Purchase and Sale will include a largely standard “no assignment” clause, which disentitles the original buyer from “directly or indirectly” taking any steps to “lease, list for sale, advertise for sale, assign, convey, sell, transfer or otherwise dispose of” the property or any interest in it.

A potential exception – and this is important – arises if the builder gives prior written consent, although in the more draconian version of these kinds of contract, that consent may be “unreasonably and arbitrarily withheld” by the builder, essentially on its whim. In other words, the buyer is not allowed to deal with the property, unless the builder pre-approves it in writing, but in many cases the builder has no obligation to give that approval and may withhold it for any reason whatsoever, including unreasonable and arbitrary ones.

(With that said, the “no assignment” clause in some agreements will allow for express exceptions or situations where the builder will not withhold consent, for example: a) assignments made to a member of the original buyer’s immediate family; or b) where the builder has determined that a sufficient and satisfactory percentage of the available units have already been sold).

The bottom line is that the basic clause in an Agreement of Purchase and Sale may or may not allow for the assignment of the agreement to a new buyer, and if it is allowed, it will be subject to specified conditions such as obtaining the builder’s written consent. Most agreements will embellish this basic clause by adding further written stipulations such as:

• Having both the original buyer and the new buyer sign an Assignment Agreement that has been drafted by the builder;
• Mandating the original buyer will not assign the agreement until the builder has managed to sell a certain percentage of the units in the overall development (for example, 85 or 90 per cent), and even then it must be with the builder’s written consent as usual;
• Requiring the original buyer to pay a fee to the builder of (for example) $5,000 plus taxes as part of obtaining the builder’s consent to the assignment;
• Requiring the original buyer to pay another fee plus taxes to the builder’s lawyer (ostensibly as a sort of “legal processing fee”);
• Getting the pre-approval of any lending institution or mortgagee that is providing funding to the builder for construction or otherwise;
• Assuming the builder agrees to the assignment in the first place, prohibiting any further assignments of the offer by the new buyer to any subsequent party;
• Confirming that the breach of any of the original buyer’s promises in relation to how and when an assignment can occur will be considered a breach of the whole agreement (and one that cannot be remedied); and
• Requiring the original buyer to confirm in writing that the property is not being purchased for short-term speculative purposes.

Note that even if the Agreement of Purchase and Sale does not expressly allow or provide for it in writing, some builders will permit an original buyer to make an assignment nonetheless. This is because it is always in the builder’s discretion to give up (usually for a fee) its right to technically insist on the purchase going ahead with the original buyer.

Getting the builder’s consent

It’s important to remember that, initially, the original buyer and the builder had a valid legal contract in place that obliged the buyer to purchase a home or condominium unit from the builder. That original buyer, for whatever reason – whether it’s a change of circumstances (such as a change in a marital situation, job transfer to another city, province or country; birth of children resulting in a home/condominium unit being too small for the buyer), cold feet, or simply the desire to make a profit – has subsequently decided to “sell” that right to buy to the new buyer.

To protect the builder, the assignment will contain clauses that are designed to safeguard the builder’s rights. The most important one is that, as discussed, the builder must give its written consent to the assignment. This will often involve specific builder-imposed requirements, fees and forms that must be completed.

Once consent has been obtained, there may be additional restrictions on the manner in which the original owner can market the property. For example, some builders will insist that the property is not to be listed on the MLS system (where it may be competing with the builder’s own listings for still-unsold homes and units in the same development); if the original owner does so nonetheless, it will be tantamount to a breach of the Agreement of Purchase and Sale, which could entitle the builder to damages, or rescission of the Agreement of the Purchase and Sale while retaining the deposits paid, as well as the monies paid for extras.

However, aside from any marketing/advertising restrictions that may be imposed, the original buyer must clearly indicate in any listing that it is an assignment of an Agreement of Purchase and Sale, not merely an ostensible sale from the original buyer.

Continuing liability after assignment

One key provision in the Agreement of Purchase and Sale – and one that is easy to overlook – may significantly impact whether an original buyer will want to assign his or her agreement at all.

Even though the original buyer has essentially transferred his or her right to buy the property to the new buyer, the original buyer is not fully off the hook. Rather, under the terms of the assignment document, the original buyer can remain liable to go through with the contract if the new buyer does not complete the transaction with the builder.

This written obligation appears in the original buyer’s Agreement of Purchase and Sale, and is couched in phrases that give the buyer continuing liability for the “covenants, agreements and obligations” contained the original agreement. But the net effect is that the original buyer remains fully liable should the agreement between the builder and the new buyer collapse. The agreement may also stipulate that the assignee, meaning the person receiving the benefit of the assignment (the new buyer) must sign an “assumption covenant”, which creates a binding contract between the new buyer and the builder.

(Incidentally, in contrast some builder’s agreements quite conveniently allow the builder itself to freely assign the agreement to any other builder registered with Tarion, which completely releases the builder from its obligations.)

The original buyer’s continuing liability under the Assignment Agreement is a major drawback in these types of arrangements. The original buyer always has to balance the risks and rewards inherent in this scenario.

Documenting the transaction

Assuming that the assignment of an offer is even permitted by the builder, then (as with all contracts) it must be documented to reflect and protect the legal right of the parties.

The technical aspects of an assignment require more than simply taking the original buyer’s Agreement of Purchase and Sale with the builder, scratching out his or her name, and replacing it with the new buyer. (Although, in some cases people do try to “squeeze in” assignment-of-offer terminology into a new Agreement of Purchase and Sale made out in the new buyer’s name – but this is definitely NOT recommended).

Rather, a properly documented transaction makes reference to the Agreement of Purchase and Sale between the original buyer and the builder, but adds a separate document called an “Assignment of Agreement of Purchase and Sale.”

OREA provides a standard form that can be used, although in many cases those builders who permit assignments will insist that the original buyer and the new buyer use the builder’s customized assignment forms, rather than the OREA standardized version.

The specifics of the deal – who pays what?

1) recouping the original buyer’s costs .

At the point where the assignment is being negotiated, the original buyer has typically paid a deposit to the builder, may have pre-paid for certain upgrades and extras and has a large balance owing. This means that in the course of striking a deal to achieve the assignment, the original buyer should give some serious thought to the various costs, fees, pre-paid deposits and tax repercussions of the deal, and how these should be reflected in the price that he or she will want the new buyer to pay under the Assignment Agreement. The timing of the payment(s) will also be a consideration.

For both original buyer and new buyer who are considering an assignment arrangement, here are some of the questions to ask:

• Does the price to be paid by the new buyer include any fee that the builder is charging in exchange for the original buyer’s right to assign the Agreement of Purchase and Sale?
• Does it include any deposits paid by the original buyer to the builder, after the agreement was signed? Does it include any interest that has been earned on those deposits?
• Does it clearly state that the new buyer will take over the entire contract, including the adjustments that are to be paid to the builder on closing? Or are those adjustments to be split between new and original buyer?
• Does the price include money paid by the original buyer for extras and upgrades?
• Are there any additional deposits that are still owing to the builder, under the original agreement?
• Who is responsible to pay the additional fee (the builder-imposed fee) in exchange for the builder giving consent? Usually this will be the original buyer, but the parties may negotiate otherwise.
• Does the new buyer agree to take on responsibility under the original agreement for making additional deposit payments until the final closing date (which may still be months or even years away)?
• Does the new buyer have a full understanding of the amount of all the adjustments that must be paid to the builder pursuant to the original agreement?
• If the original buyer has negotiated any special financial incentives into the Agreement of Purchase and Sale that has been reached with the builder, have these been addressed in terms of whether the new buyer will receive the benefit of them?

In any case, the final purchase price payable from the new buyer to the original buyer will typically be made up of:

• The outstanding balance owed to the builder by the original buyer, that will now be payable by the new buyer;
• The total deposits already paid by the original buyer to the builder;
• The total payments already paid by the original buyer to the builder for any upgrades and extras and
• The profit that the original buyer stands to make in the deal.

2) Deposits and interest on deposits

The treatment of deposits and the interest they may have earned merits a brief separate discussion.

Under virtually all Agreements of Purchase and Sale with builders, the original buyer will be required to pay a series of deposits to the builder, starting with the initial deposit paid when the agreement is signed and on a set payment schedule thereafter. The total of those deposits can be significant.

Once the agreement has been assigned to the new buyer, how those deposits are treated will form part of the negotiations. Typically, the original buyer will get those deposits back from the new buyer as part of the overall purchase price of the assignment transaction; he or she will usually receive them at the time the assignment agreement is entered into and the builder has consented to the assignment.

The potential problem with an Assignment Agreement is financing. The original buyer will want his deposit funds returned before closing, but if the new buyer does not have funds on-hand, he or she may find that financing is very difficult to obtain because banks do not advance mortgage funds at the time an Assignment Agreement is entered into; rather, the financial institution will provide funds only on final closing. This can serve as a roadblock to the new buyer’s ability to repay the deposits and potentially to embark on the transaction at all.

The question of who is entitled to the interest on any deposits pre-paid to the builder is also a topic for the original and new buyers to discuss. In many cases, the interest will be only a small amount (if any) and may be credited to the new buyer, rather than the original one. However, in cases where the original buyer has paid significant deposits over time, and where larger interest amounts have accrued, the parties may want to negotiate a different outcome.

3) Land Transfer Tax

When negotiating the deal, the original buyer and the new buyer must discuss the structure of the deal between them, to ascertain the exact selling price on which the Land Transfer Tax (and any Municipal Land Transfer Tax) should be payable; whether it is the original buyer’s price with the builder (net of HST and the HST New Housing Rebate, which is discussed below), or whether it’s the newly inflated price being paid by the new buyer under the assignment.

Generally speaking, it will be the latter, although in some assignment arrangements the parties have attempted to structure it so that they pay the Land Transfer Tax based on the lower initial price asked by the builder, while taking the position that difference between that and the increased price is merely the “fee” paid to acquire the original Agreement of Purchase and Sale entered into with the builder (thus avoiding having the tax calculated on the higher sale price).

In any case, once the Assignment Agreement is reached, it will be the new buyer who is obliged to pay Land Transfer Tax and any Municipal Land Transfer Tax on closing, not the original buyer.

4) HST and the HST New Housing Rebate 

The issue of how HST is to be treated in an assignment scenario is crucial, but is fraught with pitfalls.

The first issue is how HST on the transaction should be calculated. Because the new buyer’s price will inevitably be higher than the one the original buyer agreed to pay to the builder, there is an important issue as to whether the difference – meaning the original buyer’s profit – should be subject to HST (and if so, who will pay it in the transaction).

This determination hinges on whether the assignment is a “taxable supply” under the tax legislation and on whether the original buyer can be considered or deemed a so-called “builder” of the home for HST purposes. This, in turn, involves a number of complex legal concepts and factual findings – including the intentions of the original buyer as to whether the home is going to be a primary residence.

Next, there is the issue of the HST New Housing Rebate. In a typical scenario, the original buyer may have been entitled to the HST New Housing Rebate, based on meeting numerous qualifying requirements and stipulations. However, once he or she assigns the agreement, that eligibility is obviously lost because he or she is no longer taking title to the home on closing. Only one HST New Housing Rebate application per dwelling can be filed.

But once there has been an assignment, it is the new buyer’s circumstances that will determine whether the opportunity for an HST Rebate exists. He or she will have to meet the stipulated legislated requirements and may either apply directly to the Canada Revenue Agency (CRA), or arrange with the builder to have the rebate amount credited right at closing.

Note that the new buyer may want to take steps to protect his or her position in this regard. For example, when negotiating the Assignment Agreement, the new buyer should make the agreement conditional on receiving written confirmation from the builder that any HST New Housing Rebate will be credited to him or her on closing, assuming that the qualifying requirements are otherwise met. Otherwise, if this commitment is not in writing, the builder, being entitled to exercise its discretion on whether to credit the buyer with the rebate amount on final closing, can withhold it and force the new buyer to apply to CRA directly after closing. Obtaining this commitment in writing is especially important, given the likely lack of prior dealing between the builder and the new buyer.

Other things to consider:

1) who is responsible for the documentation.

In addition to ascertaining whether the original buyer or the new buyer will pay for certain items, it is also important to determine – in advance – which of them will take care of arranging the documentation. The questions to ask:

• Who will prepare the documents needed to achieve the assignment? And who will bear the cost?
• Will the builder’s lawyer prepare the builder’s needed consent to the assignment?
• Since the new buyer cannot renegotiate any of the provisions of the agreement that the original buyer entered into with the builder, are any of those terms objectionable, and if so, how will they be resolved and who will bear the cost?

As discussed, the Assignment Agreement will be conditional on the builder giving its consent. From the new buyer’s standpoint, it should also be made conditional on him or her giving close review to the original Agreement of Purchase and Sale (as signed by the original buyer), the Assignment Agreement, as well as any amendments, waivers, notices (and for condominium purchases, the Disclosure Statement). If for no other reason, it will give the new buyer a chance to consider the specific list of adjustments for which he or she will be responsible to pay on closing. Needless to say, this review should be undertaken with the guidance of an experienced lawyer.

Once the terms of the assignment are settled and the builder’s written consent has been obtained, the Assignment Agreement must be drafted and is attached to the original Agreement of Purchase and Sale that the original buyer entered into with the builder.

Incidentally, the builder may have certain requirements that must be incorporated into the process and accommodated as well. For example, the builder will require the new buyer to provide I.D. and will need confirmation that he or she has the financing required to close in place.

2) Tarion registration 

When negotiating the assignment arrangement, the original and new buyers must be aware of the impact of the New Home Warranty Program as administered by Tarion, particularly if the home being “flipped” is a condominium unit.

3) Financing

There may be financial issues for the new buyer to work out before the deal can go ahead.

As usual, the transaction may be conditional on financing, which will be arranged on the higher price that the new buyer has agreed to pay. However, since some mortgage brokers may be unfamiliar with financing an assignment transaction, getting approval for the new buyer’s purchase may be challenging. This is something that needs to be investigated long before the original buyer and the new buyer start their negotiations in earnest.

4) Commission

A final issue to be negotiated is who is paying the commission with respect to the Assignment Agreement transaction. This includes consideration of the specific commission rate, together with the details on how and when the commission gets paid.

While an Assignment Agreement can be beneficial to both the original and the new buyer – and even to the builder (in extra fees) there are many issues to be addressed and negotiated.

As an agent, make sure your client obtains legal advice prior to finalizing any agreement to assign the original Agreement of Purchase and Sale.

Be careful… be aware… and think!

• Agreement of Purchase and Sale

Toronto lawyer Martin Rumack’s practice areas include real estate law, corporate and commercial law, wills, estates, powers of attorney, family law and civil litigation. He is co-author of Legal Responsibilities of Real Estate Agents, 4th Edition, available at the TREB bookstore and at LexisNexis . Visit Martin Rumack’s website .

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Assignment of a Purchase and Sale Agreement for a New House or Condominium Unit

From: Canada Revenue Agency

Effective May 7, 2022, all assignment sales in respect of newly constructed or substantially renovated residential housing are taxable for GST/HST purposes. This publication will be updated to reflect this legislative change. For more information about the legislative amendment, refer to  GST/HST Notice 323, Proposed GST/HST Treatment of Assignment Sales .

GST/HST Info Sheet GI-120 July 2011

This info sheet explains how the GST/HST applies to the assignment of a purchase and sale agreement for the construction and sale of a new house.

The term "new house" used in this info sheet refers to a newly constructed or substantially renovated house or condominium unit. A house that has been substantially renovated is generally given the same treatment under the GST/HST as a newly constructed house. Extensive modifications must be made to a previously occupied house in order to meet the definition of a "substantial renovation" for GST/HST purposes. For a full explanation of the factors to consider in deciding if a substantial renovation has taken place, refer to GST/HST Technical Information Bulletin B-092, Substantial Renovations and the GST/HST New Housing Rebate .

In this publication, a house includes a single unit house, a semi detached house, a duplex, a rowhouse unit and a residential condominium unit (condo unit), but does not include a mobile home or floating home.

Where a person enters into a purchase and sale agreement with a builder for the construction and sale of a new house, the person may be entitled to assign their rights and obligations under the agreement to another person (an assignee). Generally, the result of the assignment is that the purchase and sale agreement is then between the builder and the assignee.

This publication addresses the situation where

• a purchaser (referred to as the first purchaser) enters into a purchase and sale agreement with a builder (Builder A) for the construction and sale of a new house, and
• the first purchaser subsequently assigns the agreement to an assignee (referred to as the assignee purchaser) before Builder A transfers possession or ownership of the house to the first purchaser and before any individual has occupied the house as a place of residence or lodging.

Generally, upon entering into an agreement for the construction and sale of a new house, the first purchaser is considered to have acquired an interest in the house. For GST/HST purposes, the assignment of the agreement to the assignee purchaser is normally considered to be a sale of the first purchaser's interest in the new house. The sale of an interest in a new house is generally taxable where the person selling the interest is a builder of the house.

For GST/HST purposes, the term "builder" is specifically defined and is not limited to a person who physically constructs a house. There are several instances in which an individual or other person is a builder for GST/HST purposes. For more information on persons who are included in the definition of "builder", refer to GST/HST Memorandum 19.2, Residential Real Property .

This info sheet addresses only whether a person is a builder as described in the following paragraph.

Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances

A builder includes a person who acquires an interest in a new house before it has been occupied by an individual as a place of residence or lodging for the primary purpose of selling the house or an interest in the house or leasing the house, other than to an individual who is acquiring the house otherwise than in the course of a business or adventure or concern in the nature of trade. When that person is an individual, the individual must acquire the interest in the course of a business or an adventure or concern in the nature of trade in order to be a builder described by this paragraph.

Even if a person is not a builder as described in the preceding paragraph, the person may be a builder based on one of the other definitions of the term as described in GST/HST Memorandum 19.2.

Assignment of a purchase and sale agreement by a person other than an individual

Where a person other than an individual (e.g., a corporation) is a builder as described in the section "Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances" and the person assigns a purchase and sale agreement for a new house, the person's sale of the interest in the house is subject to the GST/HST whether the sale takes place in the course of a business, an adventure or concern in the nature of trade, or otherwise.

Assignment of a purchase and sale agreement by an individual

If an individual enters into a purchase and sale agreement for one of the primary purposes described in the section "Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances", the sale of the interest in the house (or the house itself) is normally considered to be made in the course of an adventure or concern in the nature of trade or, depending on all of the surrounding circumstances, in the course of a business. If it is established that an individual is selling an interest in a new house in the course of a business or adventure or concern in the nature of trade, the individual is considered to have entered into the purchase and sale agreement for the primary purpose of selling the house or an interest in the house.

Whether the activity of acquiring an interest in a house, as a result of entering into a purchase and sale agreement, is done in the course of a business or an adventure or concern in the nature of trade is a question of fact. For more information on how to determine whether an activity is done in the course of a business or an adventure or concern in the nature of trade, refer to Appendix C of GST/HST Memorandum 19.5, Land and Associated Real Property .

Factors in determining the primary purpose

All of the relevant factors surrounding entering into a purchase and sale agreement should be considered in determining the primary purpose for a person's acquisition of an interest in a new house.

The following factors may indicate that, for GST/HST purposes, a person entered into a purchase and sale agreement for the primary purpose of selling an interest in the new house or the house itself. The factors are not listed in any particular order and there is no intent to weigh one more heavily than another.

• The person offers to sell their interest in the house or takes other actions to attract buyers before, or while, the house is under construction.
• The person finances the purchase of the house by a short-term mortgage, or an open mortgage that can be paid off without penalty, rather than by a long-term or closed mortgage.
• Financing of the house is beyond the person's means and that person is relying on the increased value and saleability of the house, or an interest in the house, in a rising housing market.
• The person is an individual and their stated intention to occupy the house as a place of residence is not supported by the circumstances of the case. For example, an individual has a family of four and enters into a purchase and sale agreement for a one-bedroom condo unit where they are not contemplating any changes in family circumstances.
• The person's pattern of activity is such that their occupancy of the house does not have the qualities or characteristics of being permanent. For example, the person purchases more than one house at or around the same time. This factor may be given extra weight where the person has previously entered into a purchase and sale agreement for purposes of selling the house or an interest in the house. There are no outward indicators to support a contrary primary intention (i.e., an intention contrary to an intention of resale). For example, an individual is selling a condo unit, one or more of the above factors are present, there are no physical actions or evidence that the individual's primary intention was to live in the condo unit, use it as a vacation home, or rent it to another individual for use as their place of residence, and no evidence that the sale of the condo unit was triggered by some unforeseen event.

In order for the acquisition of an interest in a new house to be for one of the primary purposes described in the section "Primary purpose: selling the house or an interest in the house or leasing the house in certain circumstances", the intention to sell the house or an interest in it, or to lease the house in the manner described in that section, must have existed at the time of acquiring the interest. Nonetheless, the intention at the time of acquisition may be demonstrated over a period of time.

If an individual acquired an interest in the house for the primary purpose of using it as a place of residence, the person is not considered to be a builder of the type described in this info sheet even if, at a later point in time, the person sells the house or an interest in the house. However, the person may still be a builder if the person meets one of the other definitions of that term as described in GST/HST Memorandum 19.2.

The following examples illustrate when a person may or may not be a builder of a new house.

Sarah, Francine, and Angela are roommates renting a three-bedroom house. They entered into a purchase and sale agreement with a builder in January 2010 for a one-bedroom condo unit in a new condominium complex that was to be built. The purchase price under the agreement was $300,000 and the closing date was July 31, 2013.

In March 2011, the fair market value of the new condo unit had increased by 50%. They entertained several offers for the sale of their interest in the condo unit before assigning it to James. No individual had occupied the condo unit as a place of residence or lodging when they sold their interest in the unit. They split the proceeds, which they each used as a down payment to buy their own homes.

As it would not be practical for the three individuals to live in the condo unit together, they considered several offers for their interest in the unit, and there are no indicators to support a contrary intention, Sarah, Francine and Angela are considered to have acquired their interest in the condo unit for the primary purpose of selling the unit or an interest in it. The sale is considered to be made in the course of a business or adventure or concern in the nature of trade. Accordingly, Sarah, Francine, and Angela are all builders of the condo unit for GST/HST purposes. As they are builders of the unit and the sale of their interest in the unit is not exempt, GST/HST applies to the sale of each of their interests.

Pascal and Chantal own a four-bedroom house where they live with their three children. This is the only home they have ever owned and lived in. They have never purchased any other real property.

In June 2009, they entered into a purchase and sale agreement with a builder for a 1-bedroom condo unit in a new high-rise condominium complex that was to be built. The purchase price under the agreement was $275,000 and the closing date was June 30, 2010. In May 2010, they sold their interest in the new condo unit for $400,000 before it had been occupied by any individual as a place of residence or lodging. They used the sale proceeds to build an addition to their current home.

Although Pascal and Chantal have no history of buying and selling real property, it would not be practical for their family of five to occupy the condo unit as their place of residence. Lacking evidence to support a contrary intention, their primary purpose in acquiring the interest in the condo unit is considered to be for the purpose of selling the condo unit or an interest in it in the course of a business or an adventure or concern in the nature of trade. Accordingly, they are builders of the new condo unit for GST/HST purposes. As the sale of their interest in the unit is not exempt, GST/HST applies to the sale of their interest.

Eric and Gina owned a 3-bedroom house where they lived with their 3 children. They entered into a purchase and sale agreement with a builder in October 2010 to purchase a new 4-bedroom house that was to be built. They intended to use the new house as their primary place of residence as it was located much closer to the children's school and to Eric and Gina's workplaces and had more space. The closing date is July 31, 2011.

Eric and Gina sold their current home in January 2011 and moved into a rented home they planned to live in until their new house was ready. However, in June 2011, Gina's mother became ill and moved in with them as she was no longer able to live on her own.

Eric and Gina decided that the new house would no longer be large enough and that they would now need a house with a granny suite. They sold their interest in the new 4-bedroom house so that they could buy a bigger home that would suit their changed needs.

Eric and Gina's sale of their original home and temporary move to a rented house during the construction of the new home and their choice to purchase a home located closer to school and work support that their intention in acquiring the interest in the new house was to use the house as their primary place of residence. Given this, and the fact that their only reason for selling the interest was due to a change in personal circumstance (i.e., the new house would no longer accommodate their family's needs), they are not considered to have acquired the interest in the house for the primary purpose of selling it. Accordingly, they are not builders of the new house for GST/HST purposes and the sale of their interest in the house is exempt.

Cindy entered into a purchase and sale agreement with a builder in November 2010 for a new house that was to be built. She intended to use the house as her primary place of residence. Her new home would be located within walking distance from her workplace and would be closer to her family than the apartment she is currently renting. The closing date for the purchase is September 30, 2011.

In July 2011, Cindy's employer announced that it was relocating to another city located three hours away. To keep her current job, Cindy had to move to that city. She sold her interest in the house to John.

Since Cindy had intended to use the house as her primary place of residence and her only reason for selling her interest in the house was due to work relocation, she did not acquire the interest in the house for the primary purpose of selling it. Therefore she is not a builder of the house for GST/HST purposes and the sale of her interest in the house is exempt.

Assignment fees

The consideration charged for the sale of an interest in a house generally includes amounts that a person paid to a builder (e.g., a deposit) and that the person wants to recover when assigning their interest in the house. The sale price for the interest may also include a profit, i.e., an amount over and above amounts the person had paid to the builder. If a person's sale of their interest to an assignee purchaser is taxable, the total amount payable for the sale of the interest is subject to GST/HST, including any amount the person paid as a deposit to the builder, whether or not such an amount is separately identified.

A first purchaser enters into a purchase and sale agreement for a new house with a builder (Builder A) and pays a deposit of $10,000 at that time. The first purchaser does not make any further payments to Builder A. The first purchaser subsequently assigns the agreement to an assignee purchaser for $15,000. If the sale of the interest in the house from the first purchaser to the assignee purchaser is subject to GST/HST, tax applies to the full $15,000. This is the case even if the assignment agreement identifies that the $10,000 is a recovery of the deposit that the first purchaser paid to Builder A.

The assignment of a purchase and sale agreement for a new house may be subject to the approval of the builder with whom the first purchaser originally entered into the agreement to construct and sell the new house. The agreement may list conditions related to the first purchaser's right to assign the agreement to an assignee purchaser and, in many cases, the builder charges a fee to the first purchaser for the assignment of the agreement to another person.

The fee charged by the builder in such circumstances is generally subject to the GST/HST.

Eligibility for a GST/HST new housing rebate and provincial new housing rebate (where applicable) where a purchase and sale agreement is assigned

The GST/HST new housing rebate, and where applicable, a provincial new housing rebate, may be available for a new house purchased from a builder and for owner-built new housing. Guide RC4028, GST/HST New Housing Rebate , sets out the eligibility criteria for both types of GST/HST new housing rebates and provincial new housing rebates.

If the first purchaser (the assignor) makes a taxable sale of an interest in a house, i.e., the first purchaser is a builder and assigns the purchase and sale agreement to an assignee purchaser, the first purchaser would not be eligible for either a GST/HST new housing rebate or provincial new housing rebate as they did not acquire the house for use as their primary place of residence. Even if the sale of the interest in the house by the first purchaser is not subject to GST/HST (i.e., in situations where the first purchaser is not a builder of the house), the first purchaser would generally not be eligible for either a GST/HST new housing rebate or a provincial new housing rebate as the conditions for claiming the rebates are not met (e.g., ownership of the house would not transfer to the first purchaser, but to the assignee purchaser).

The assignee purchaser, if an individual, may be eligible for a GST/HST new housing rebate, and where applicable a provincial new housing rebate, where the assignee purchaser receives an assignment of a purchase and sale agreement for a new house. The assignee purchaser would have to meet the eligibility conditions for the rebates as set out in Guide RC4028.

Where a purchase and sale agreement for a new house is assigned, there may be two builders of the house – the original builder (Builder A) and the first purchaser (the assignor). If that is the case, an assignee purchaser would generally have to pay the GST/HST to Builder A for the purchase of the new house and to the first purchaser for the purchase of the interest in the new house.

Claiming a GST/HST new housing rebate when there is more than one builder

In some cases, the builder of a new house pays or credits the amount of the GST/HST new housing rebate, and where applicable, a provincial new housing rebate, to the purchaser of the house. In this case, the builder credits the amount of the new housing rebates to the purchaser by reducing the total amount payable for the purchase of the house by the amount of the expected rebates.

Where this happens, the purchaser and the builder have to sign Form GST190, GST/HST New Housing Rebate Application for Houses Purchased from a Builder , and the builder has to send the form to the Canada Revenue Agency (CRA). As the purchaser receives the amount of the rebate from the builder, the builder may claim the amount as a credit against its net tax when it files its GST/HST return.

Only one new housing rebate application can be made for each new house. Therefore, an assignee purchaser cannot submit a rebate application through a builder (Builder A) for the tax paid to Builder A on the purchase of the house and submit a second rebate application through the first purchaser (the assignor), or directly to the CRA, for the tax paid to the first purchaser on the purchase of the interest in the house.

In such cases, the assignee purchaser may want to file their new housing rebate application directly with the CRA rather than through Builder A. In this way, the assignee purchaser can include in the new housing rebate application the tax paid to Builder A and the tax paid to the assignor in determining the amount of their GST/HST new housing rebate and, where applicable, a provincial new housing rebate.

This info sheet does not replace the law found in the Excise Tax Act (the Act) and its regulations. It is provided for your reference. As it may not completely address your particular operation, you may wish to refer to the Act or appropriate regulation, or contact any CRA GST/HST rulings office for additional information. A ruling should be requested for certainty in respect of any particular GST/HST matter. Pamphlet RC4405, GST/HST Rulings – Experts in GST/HST Legislation explains how to obtain a ruling and lists the GST/HST rulings offices. If you wish to make a technical enquiry on the GST/HST by telephone, please call 1-800-959-8287.

Reference in this publication is made to supplies that are subject to the GST or the HST. The HST applies in the participating provinces at the following rates: 13% in Ontario, New Brunswick and Newfoundland and Labrador, 15% in Nova Scotia, and 12% in British Columbia. The GST applies in the rest of Canada at the rate of 5%. If you are uncertain as to whether a supply is made in a participating province, you may refer to GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of Supply Rules for Determining Whether a Supply is Made in a Province .

If you are located in Quebec and wish to make a technical enquiry or request a ruling related to the GST/HST, please contact Revenu Québec at 1-800-567-4692. You may also visit the Revenu Québec Web site to obtain general information.

All technical publications related to GST/HST are available on the CRA Web site at www.cra.gc.ca/gsthsttech .

Page details

B.C. court rules on condo purchase dispute that ended long-term friendship

A Vancouver condo owner was right to keep more than $300,000 her former friend paid her toward the purchase of the property before backing out of an assignment sale agreement, the B.C. Supreme Court has ruled.

Wei-Jen Wang and Weiqin Li were "longtime friends," according to the decision issued May 10 and posted online earlier this week . Their relationship "ended acrimoniously" after an agreement for Li to take over Wang's purchase of an under-development condo unit fell apart. 

Li sued Wang, alleging that no such agreement existed and the $340,188 she paid towards the purchase should be returned. Li also accused Wang of fraudulent misrepresentation, but withdrew that claim at the start of the trial.

Wang countersued, arguing that Li had repudiated the contract and was not entitled to a refund. She also claimed more than $200,000 worth of damages had allegedly resulted from the breach of contract, and sought to have the court order Li to pay her that amount.

B.C. Supreme Court Justice Nitya Iyer found largely in Wang's favour, dismissing Li's allegations and allowing Wang to keep her former friend's deposits. Iyer also awarded special costs to Wang because of Li's baseless fraud accusation, but the judge declined to award the damages Wang was seeking, ruling that Wang had failed to take any action to mitigate those damages.

The property and the purchase agreement

The condo in question is a unit in a building at 458 W. 63rd Ave. in Vancouver's Cambie Corridor, according to the court decision. The development at that address is known as "Reside." Developer Marcon completed construction in late 2019. 

Wang's unit, according to BC Assessment, has three bedrooms and two bathrooms, with 1,258 square feet of living space. The assessed value for 2024 was just over $1.6 million.

The agreement for Li to take over the purchase came about in late 2017, while the building was still under construction. It took the form of an "assignment sale," a term that describes a buyer entering a contract to purchase a piece of real estate, then transferring (or "assigning") their rights under the contract to a different buyer before the transaction is completed.

The court decision explains that Wang and Li both have families in Shanghai and have resided there in the past. While Wang was in that city caring for her mother in 2017, Li paid them a visit, and Wang mentioned that she had just acquired the pre-sale unit in Vancouver.

While the decision uses the term "acquired," it makes clear that Wang was not actually the person who signed the pre-sale contract. Rather, Wang's nephew Haw Wang was the purchaser, and his mother Lily Hui Hua Hsiao paid the deposits stipulated under the contract.

"The pre-sale contract expressly gave Mr. Wang the right to assign the pre-sale unit to Ms. Wang upon completion at no additional cost," the decision reads. "Ms. Wang had asked Mr. Wang to make the purchase on her behalf and asked Ms. Hsiao to make the payments to the developer stipulated in the pre-sale contract because they were both in Vancouver and she was in China."

When Li expressed interest in buying the property during the Shanghai meeting, Wei-Jen Wang agreed to assign the contract to her without taking an assignment fee "because they were friends," according to the decision.

What followed was an arrangement in which Hsiao made payments to Marcon on behalf of Wang, and was repaid by Li – again, on behalf of Wang, who was the only person of the three who had a contracted interest in the property, through her nephew.

"Sometime between September 2018 and January 2019, Ms. Li decided not to proceed further with acquiring the pre-sale unit," the decision reads. "In November 2018, Ms. Hsiao informed Ms. Li that the third deposit would be due in December. There were some communications about this. Ultimately, Ms. Li did not pay the third deposit. Ms. Hsiao paid it on Ms. Wang’s behalf."

In January 2019, Li visited Wang's home in Shanghai and the two had a "heated argument," according to the decision.

Li demanded that Wang return the money she had already paid toward the purchase, and Wang refused.

"This event marked the end of the friendship," the decision reads. "Ms. Li and Ms. Wang did not communicate again for about a year."

Who repudiated the contract?

The primary arguments in Li's claim were that there was never a contract for her to take over the purchase of the condo or, if there was, Wang was the one who breached it.

A review of WeChat messages between the parties helped Iyer conclude that the parties did have a binding agreement, even if it was never formalized as a single written document.

"In the context of their longstanding friendship, Ms. Li’s unequivocal statement on March 2, 2018, that she wanted the property and was agreeable to any payment terms created a binding agreement," the decision reads.

"The essential terms were the identity of the parties, identification of the pre-sale unit as the property and the purchase price. Ms. Li’s reimbursement of Ms. Hsiao for the March and June deposits is subsequent conduct that supports the conclusion that the parties objectively intended to enter into a binding contract."

Having reached this conclusion, the judge determined that Li had "repudiated" the contract.

In legal terms, "repudiating" a contract means breaching it in a way that "substantially defeats its objective," according to the decision.

Li argued that Wang had repudiated the contract by failing to assign it to her in a timely manner, but Iyer found there was insufficient evidence indicating that the timing of the assignment was a key term of the agreement.

"Even if assignment before the due date of the third deposit was a term of the assignment agreement, it was not a term sufficiently material that its breach could constitute repudiation," the decision reads.

Instead, Iyer found that Li had repudiated the agreement by refusing to make any further payments and demanding her money back. Wang's refusal to give her the money back constituted an "acceptance" of the repudiation.

"Where a purchaser makes partial payments towards the purchase of property, including through an assignment agreement, but then repudiates the contract, the vendor is entitled to keep those payment upon acceptance of the repudiation," the decision reads.

Thus, Iyer ruled, Wang was entitled to keep the $340,188 in payments Li made toward the purchase.

The judge dismissed Wang's claims for $233,749 in damages allegedly caused by Li backing out of the assignment agreement, concluding that she had not made any efforts to offset those costs – such as by renting out the unit.

"Ms. Wang has not established that the costs she claims in relation to mortgage interest, strata fees, property taxes, home insurance premiums and loss of interest on investment income were not recoverable by her from the rental income she could have received," the decision reads. 

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Police searching for black Ford Fusion after road rage incident in Edmonton

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Northern Ontario

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TikTok challenges U.S. ban in court, calling it unconstitutional

Bobby Allyn

TikTok's suit is in response to a law passed by Congress giving ByteDance up to a year to divest from TikTok and find a new buyer, or face a nationwide ban. Kiichiro Sato/AP hide caption

TikTok's suit is in response to a law passed by Congress giving ByteDance up to a year to divest from TikTok and find a new buyer, or face a nationwide ban.

TikTok and its parent company on Tuesday filed a legal challenge against the United States over a law that President Biden signed last month outlawing the app nationwide unless it finds a buyer within a year.

In the petition filed in the Court of Appeals for the District of Columbia Circuit, the company said the legislation exceeds the bounds of the constitution and suppresses the speech of millions of Americans.

"Banning TikTok is so obviously unconstitutional, in fact, that even the Act's sponsors recognized that reality, and therefore have tried mightily to depict the law not as a ban at all, but merely a regulation of TikTok's ownership," according to the filing.

The law, passed through Congress at lightning speed, which caught many inside TikTok off guard, is intended to force TikTok to be sold to a non-Chinese company in nine months, with the possibility of a three month extension if a possible sale is in play.

Yet lawyers for TikTok say the law offers the company a false choice, since fully divesting from its parent company, ByteDance, is "simply not possible: not commercially, not technologically, not legally," the challenge states. "And certainly not on the 270-day timeline required by the Act."

Anupam Chander, a law professor at Georgetown University who specializes in technology regulations, said if TikTok loses this legal fight, it will likely shut down in the U.S.

"The problem for TikTok is that they have a parent company that has these obligation in China, but they're trying to live by free speech rules by the United States," Chander said in an interview. "The question is whether American courts will believe that that's even possible."

TikTok says law based on "speculative and analytically flawed concerns"

Lawmakers in Washington have long been suspicious of TikTok, fearing its Chinese owner could use the popular app to spy on Americans or spread dangerous disinformation.

But in the company's legal petition, lawyers for TikTok say invoking "national security" does not give the government a free pass to violate the First Amendment, especially, TikTok, argues, when no public evidence has been presented of the Chinese government using the app as a weapon against Americans.

Possible TikTok ban could be 'an extinction-level event' for the creator economy

According to the filing, the law is based on "speculative and analytically flawed concerns about data security and content manipulation — concerns that, even if grounded in fact, could be addressed through far less restrictive and more narrowly tailored means."

New DOJ Filing: TikTok's Owner Is 'A Mouthpiece' Of Chinese Communist Party

Constitutional scholars say there are few ways for the government to restrict speech in a way that would survive a legal challenge. One of those ways is if the government can demonstrate a national security risk. Also key, legal experts say, is the government showing the speech suppression was the least restrictive option on the table.

TikTok said Congress ignored less restrictive ways of addressing the government's national security concerns.

"If Congress can do this, it can circumvent the First Amendment by invoking national security and ordering the publisher of any individual newspaper or website to sell to avoid being shut down," the filing states. "And for TikTok, any such divestiture would disconnect Americans from the rest of the global community."

Since more than 90% of TikTok's users are outside of America, Georgetown's Chander said selling the U.S.-based app to a different owner would cannibalize its own business.

"You can't really create a TikTok U.S., while having a different company manage TikTok Canada," Chander said in an interview. "What you're doing essentially is creating a rival between two TikToks," he said. " It may be better to take your marbles out of the United States and hope to make money outside of the U.S., rather than sell it at a fire-sale price."

TikTok critics call app a 'spy balloon on your phone'

The filing sets off what could be the most important battle for TikTok. It has been fending off legal challenges to its existence since former President Trump first sought to ban the app through an executive order in the summer of 2020. That effort was blocked by federal courts.

Since then, Democrats and Republicans have shown a rare moment of unity around calls to pressure TikTok to sever its ties with ByteDance, the Beijing-based tech giant that owns the video-streaming app.

Trump's Ban On TikTok Suffers Another Legal Setback

Congress has never before passed legislation that could outright ban a wildly popular social media app, a gesture the U.S. government has criticized authoritarian nations for doing.

In the case of TikTok, however, lawmakers have called the app a "spy balloon on your phone," emphasizing how the Chinese government could gain access to the personal data of U.S. citizens.

Worries also persist in Washington that Beijing could influence the views of Americans by dictating what videos are boosted on the platform. That concern has only become heightened seven months before a presidential election.

Yet the fears so far indeed remain hypothetical.

There is no publicly available example of the Chinese government attempting to use TikTok as an espionage or data collection tool. And no proof that the Chinese government has ever had a hand over what TikTok's 170 million American users see every day on the app.

TikTok says it offers U.S. a plan that would shut app down if it violated agreement

TikTok, for its part, says it has invested $2 billion on a plan, dubbed Project Texas, to separate its U.S. operation from its Chinese parent company. It deleted all of Americans' data from foreign servers and relocated all of the data to servers on U.S. soil overseen by the Austin-based tech company Oracle.

While the plan was intended to build trust with U.S. lawmakers and users, reports surfaced showing that data was still moving between staff in California and Beijing.

In the filing on Tuesday, TikTok said it submitted an agreement to the Committee on Foreign Investment in the United States, which has been probing the app for five years, that would allow the U.S. to suspend TikTok if it violated terms set forth in a national security plan.

But, lawyers for TikTok say, the deal was swept aside, "in favor of the politically expedient and punitive approach," the petition states.

Mnuchin claims he will place a bid to buy TikTok, even though app is not for sale

Despite the new law giving TikTok the ultimatum of selling or being shut down, there are many questions around how the app could even be bought by another company or group of investors.

Former Treasury Secretary Steven Mnuchin told NPR on Monday, he is planning to assemble a group of investors to try to purchase TikTok without the app's algorithm.

Mnuchin, who declined to answer additional questions, said in between sessions at the Milken Institute Global Conference in Los Angeles that the proposal to buy the app is still in the works, but he would not say when it would be formally submitted.

One major obstacle in any possible sale of TikTok is a glaring problem: The app is not for sale.

TikTok Ban Averted: Trump Gives Oracle-Walmart Deal His 'Blessing'

Despite the new law in the U.S., ByteDance says it does not intend to let go of the service. Furthermore, winning the support of China would be necessary, and officials in Beijing are adamantly against any forced sale.

In 2020, amid the Trump administration's clamp down on the app, China added "content-recommendation algorithms" to its export-control list, effectively adding new regulations over how TikTok's all-powerful algorithm could ever be sold.

ByteDance, not TikTok, developed and controls the algorithm that determines what millions see on the app every day. The technology has become the envy of Silicon Valley, and no U.S. tech company has been able dislodge TikTok's firm hold on the short-form video market. Experts say key to its success is its highly engaging and hyper-personalized video-ranking algorithm.

The algorithm, which involves millions of lines of software code developed by thousands of engineers over many years, cannot be easily transferred to the U.S., even if China did allow it, TikTok's challenge states.

Lawyers for TikTok argue that "any severance [of the algorithm] would leave TikTok without access to the recommendation engine that has created a unique style and community that cannot be replicated on any other platform today."