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Consumer Guide to Assignments

Consumer Guide to Assignments

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This FAQ explains what contract assignments are for both presale and resale, how assignments work in British Columbia, how buyers notify sellers of their intent to assign a purchase contract, and a seller’s options when asked by a buyer for permission to assign a contract.

What is an assignment?

An assignment is the transfer of benefits, interests and rights under a contract from one party (the assignor) to another party (the assignee).

The most common use of an assignment in B.C. real estate occurs when a buyer, having an accepted offer on a property, transfers their benefits, interests and rights under the purchase contract to a third party before the completion date on the contract.

An assignment may also be considered in the context of adding another buyer to a purchase contract after the offer has been accepted by the seller but before completion.

Assignments of contracts are permitted in B.C. but there are requirements and restrictions in the law that must be adhered to before an assignment can take place.

In B.C., a real estate purchase contract must include a term prohibiting the assignment of the contract without the written consent of the seller. If the buyer wishes to be able to assign the contract at some point in the future, their real estate professional will amend or remove the required restriction and then provide the seller with a form indicating that the buyer made a change to the required restriction. If the seller, agrees, that they will permit the buyer to assign the contract, they sign the form agreeing to it.

If, after an offer from a buyer is accepted by a seller and the buyer decides they want the right to assign the contract, they may present an amendment to the purchase contract to the seller requesting the right to assign the contract. There are risks to amending an accepted offer and the buyer should speak with their real estate professional and get legal advice before opening the contract to ensure they understand those risks.

Are assignments the same as ‘shadow flipping’?

‘Shadow flipping’ is a term used to describe an action whereby a buyer would write an offer on a property, and then, without the seller’s knowledge or consent, assign the contract to a third party for a profit.

This activity was eliminated by the new legislation requiring all purchase contracts to include the term prohibiting assignments without the consent of the seller and requiring a buyer to provide an additional form if their initial offer to the seller did not include that term or altered that term in any way.

How does a seller know if a buyer wants the ability to assign the contract?

When a buyer wants the ability to assign a purchase contract they must remove or alter the mandatory language prohibiting the assignment without the seller’s consent. To ensure the seller is aware that a change has been made, the buyer’s real estate professional must also provide the seller with a form called a Notice to Seller Regarding Assignment Terms along with the offer advising the seller that a change has been made to the assignment term in the purchase contract.

What if a buyer wants the ability to just add a second buyer to the purchase contract? Is that also considered to be an assignment?

If a buyer wants to submit an offer with a term allowing them to add one or more buyers after the offer is accepted, that is considered an assignment as well, and the offer must be accompanied by the Notice to Seller Regarding Assignment Terms form.

Are there differences between the rules around assignments when buying a property that is currently owned, and a new build purchased from a developer?

Yes. The Regulation around assignment terms in a resale contract are not the same as those under the Real Estate Development Marketing Act which governs developers and how they market and sell properties.

Pre-sale contracts may permit the developer to charge a fee or cap the number of assignments allowed. It may also permit them to restrict assignments all together. It is important that if you are purchasing a pre-sale property, you and your real estate professional read the assignment terms in the purchase contract and seek legal advice when those terms are unclear.

If I am a tenant, can I assign my lease?

In BC, the assignment of a residential tenancy agreement is regulated by the Residential Tenancy Act and the Residential Tenancy Regulation. According to the Residential Tenancy Act, a tenant must not assign its tenancy agreement unless the landlord consents in writing to the assignment. Failing to obtain the landlord’s written consent prior to the assignment could result in the landlord serving the tenant with notice to end the tenancy.

Once the assignment has completed, the new tenant assumes all of the rights and obligations of the original tenant under the tenancy agreement, at the same rental rate. The landlord may only increase base rent 12 months after the date of the preceding rent increase, notwithstanding that there is a new tenant resulting from the assignment.

If a fixed-term tenancy agreement has six or more months remaining in the term, the landlord cannot unreasonably deny a tenant’s request to assign their lease, and they cannot charge a fee for granting permission to assign the lease.

If I purchase an assignment from someone, do I have to pay taxes on it?

Depending on whether or not GST was owed under the original contract, you may be required to pay GST on the assignment. You should seek professional accounting advice to determine if this is the case. You can negotiate with the seller of the assignment if GST is still owed.

Property Transfer Tax (“PTT”) will also be owed if you do not qualify for an exemption. This tax may be owed on the original contract price plus the assignment amount. Additionally, if the seller of the assignment is a non-resident, as defined in the Income Tax Act, the ‘anti-avoidance’ provisions of the Property Transfer Tax Act may be triggered, resulting in substantial fines if the assignment transaction is determined to have been made primarily to avoid paying the non-resident withholding tax.