In Vaughan, an assignment sale involves selling your contract rights for a pre-construction condo before the building is registered. It requires the builder’s written consent, and you are generally responsible for paying HST on the profit. Hiring a local real estate lawyer is essential to navigate the complex tax and legal obligations.
Vaughan’s skyline is expanding rapidly, particularly around the Vaughan Metropolitan Centre. Buying a pre-construction condo is a popular investment, but life circumstances can change before the building is fully constructed. If you need to sell your unit before the final closing date, you must execute an assignment sale. It is important to understand that in this scenario, you are not selling physical bricks and mortar; you are selling the legal contract you signed with the builder to a new buyer (known as the assignee). This legal transfer allows the new buyer to take your place and close the final deal with the developer.
Assignment sales are notoriously complex and vastly different from traditional resale real estate transactions. In Ontario, you cannot simply advertise your unit on the MLS or sell it to a friend without strict oversight. Because the builder still technically owns the uncompleted building, they have massive control over whether you can sell your contract. Furthermore, the Canada Revenue Agency (CRA) heavily scrutinizes assignment sales to ensure taxes are paid on any profits. Consulting an experienced real estate law firm in Vaughan is the safest way to ensure the paperwork is legally binding and tax-compliant.
Step-by-Step Process in Vaughan
Executing an assignment sale requires coordination between you (the assignor), the new buyer (the assignee), the builder, and the lawyers representing all parties.
Step 1: Review the Original Agreement of Purchase and Sale
Before you list your condo contract for sale, your lawyer must review the original Agreement of Purchase and Sale (APS) you signed with the developer. Many builders include strict clauses that absolutely prohibit assignment sales, while others allow them only after 90% of the building is sold. You must determine exactly what your specific contract permits.
Step 2: Obtain Builder Consent
If your contract allows for an assignment, you cannot proceed without the builder’s formal written consent. The developer will usually require the new buyer to submit a mortgage pre-approval to prove they are financially capable of taking over the contract. The builder will also charge an administrative fee to process this consent, which must be paid before the deal can move forward.
Step 3: Draft the Assignment Agreement
Once you have a willing buyer and the builder’s preliminary nod, your real estate agent and lawyer will draft an Assignment of Agreement of Purchase and Sale (often using OREA Form 150). This document outlines the purchase price, how your initial deposits will be reimbursed to you, and the specific profit (the “lift”) you will make on the sale.
Step 4: Navigate HST and Tax Implications
This is where many sellers make costly mistakes. If you sell the contract for a profit, the CRA generally requires you to pay HST on that “lift.” Additionally, you must declare the profit on your income tax return as either capital gains or business income, depending on your original intent when purchasing. Your lawyer and accountant must collaborate to ensure the correct taxes are withheld or paid.
How Much Does it Cost in Vaughan?
Selling a contract involves several unique out-of-pocket expenses that you would not encounter in a standard home sale.
- Builder Consent Fees: Developers in Ontario typically charge between $1,500 and $5,000 CAD (plus HST) simply to grant you permission to assign the contract.
- Legal Fees: Because the paperwork is far more intricate than a standard closing, real estate lawyers generally charge between $1,500 and $3,000 CAD to process an assignment.
- Real Estate Commissions: If you use an agent to find a buyer, you will pay standard commission rates (typically around 4% to 5% of the total assignment price).
- HST on the Profit: You are generally liable to pay 13% HST on the profit you make from selling the contract.
How Long Does the Process Take?
An assignment sale can take a surprisingly long time to finalize. Finding a buyer who has the cash to reimburse your original deposits can take weeks. Once an agreement is signed, the builder’s legal department often takes 2 to 4 weeks to review the assignee’s finances and issue the formal consent document. The actual funds are usually transferred upon this final approval, well before the building is actually registered.
Frequently Asked Questions (FAQ)
Can the builder refuse my request to assign the condo?
Yes. If your original Agreement of Purchase and Sale explicitly states that assignments are strictly prohibited, or if the builder feels the new buyer is not financially qualified, they have the absolute legal right to deny the assignment. You are bound by the terms of the contract you signed.
Do I pay Land Transfer Tax on an assignment sale?
No, the assignor (the person selling the contract) does not pay Ontario Land Transfer Tax because they never officially take title to the physical property. The new buyer (the assignee) will be responsible for paying the Land Transfer Tax when the building finally registers and the title officially transfers to them.
What happens if the new buyer fails to close with the builder?
This is a major risk. In most assignment agreements in Ontario, the original buyer (you) remains liable to the builder. If the new buyer defaults and cannot secure a mortgage on the final closing date, the builder can legally pursue you for the completion of the sale or sue you for damages.
Can I advertise my assignment sale on the MLS?
In most cases, no. Builders almost universally forbid the advertising of assignment sales on the Multiple Listing Service (MLS) or public websites like Kijiji, as they do not want you competing with their own unsold inventory. You generally must sell the unit through private, exclusive agent networks.
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