It was oh so close…   you find a fantastic assignment for a client- right in that sweet spot of things one would want in DT Toronto

A two bedroom two washroom unit, 811ft2, finished balcony, locker, parking spot and on a perfect floor between 10-15 – high enough for a view but low enough to be rescued by Toronto Fire (God forbid). 

I negotiated the terms with the listing agent, my client had the cash necessary to seal the deal, the vendor was flexible on the payment- the contract was signed with two main conditions: Solicitor’s review and securing financing.

It was as perfect and a serendipitous as it could have been-   my client and I first put an offer on a similar unit on a lower floor but – it offered no parking- but we went ahead anyways…. Made an offer 2 days before the end of the dreaded year 2020.  Everyone wanted to make the deal. 

My broker and I sat down with the seller to explain the “ins and outs” of buying an assignment. It can be intimidating at first but explained the important points of such a purchase!   When you buy and assignment, you are basically buying the rights to the contract of the pre-construction property.   You are not actually buying the unit as it has either not yet been built or the title on it has not been registered.  You are an essence buying a piece a paper that says you are now the new owner of the promised home.    

The Buyer, also known as the Assignee, buys the Builder’s contract from the Vendor or the Assignor.  This Assignor is the original purchaser of the property- you know, the guy that actually went to the Sales Center either on his own or enticed by a real estate agent and bought into the pre-construction hype and fanfare that comes with buying a property site unseen or at least on paper or off this beautiful scale model of the building/home and its grounds all amenities it has to offer. The Assignor signs that pre-construction contract with the building with the promise of it being completed and the property delivered in the estimated time the Builders expects.   The Assignor at this early stage of the transactions buys a contract and starts paying the deposit structure the builders requires which can be 5% on signing and then 5% chunks until 20% of the total purchase price is reached with a final deposit happening on occupancy or earlier.  The Assignor acts on good faith bound by a contract that the building will be completed and that the product delivery will be exactly as described on the contract with the upgrades (if chosen) while the Builder has the obligation to fulfill this contract pending any unforeseen external forces prevents him to do so.  The Agreement of Purchase and Sale of course has all the clauses protecting the Builder and Original Purchaser but many of the clause do protect the Builder in case of default , delays etc… but for the most part the money of the Purchaser is secured with the typical most case scenario is that the builders does not complete the transaction forcing the Buyer to reclaim his deposit money and just lick his wounds from a lost opportunity cost for that money siting in the Builders accounwt interest free instead of it working for the buyer in a different investment.  Hard to predict and is part of the risk of buying preconstruction and the reason that as a buyer of this type of product you want to buy into reputable projects from reputable builders that know what they are doing.

The buying of an assignment is not for everyone and trying to explain the pro and cons of buying a “piece of paper” can be tricky it Is at the end of day buying something from someone that has later changed their minds and are looking for a way out.  In the case of the Assignor ( the Vendor )  he basically came in enthusiastically into the Builders office wanting to buy a brand new home for himself or as an investment but as time went on  (typically 2-5 years) he changed his mind and wants an “out”.   Why did he change his mind? Well, the reasons can be multiple: he is moving out of the county, he is getting married and needs money, he lost his lob and can’t afford the property when it comes times to move in, he is getting a divorce… you see? The list goes on and on.  My buyer wanted to know the reason as if it really mattered-  it doesn’t it.  The Assignor is either strapped for cash or he is making a business out of buying and selling preconstruction property as assignments- those moves have a tax implication for him as the seller but at the end of the day, he wants two things, the money from his deposit and a profit amount- basically his reward for buying the property early and the increase of value that we see in Toronto real estate over time.  

As the agent for the Assignee, I had to negotiate that spread in the price –  the money that was already paid to the builder and the extra money on top- plus of course the money paid on the property originally to the Builder that typically becomes the mortgaged side of the equation once the property gets registered.

So, getting back to our initial offer for purchase, I was able to secure a very good deal, ending at $50/ft2 less than the original price and we were waiting on us to provide the final sign back to accept the offer. 

My client was ok with purchasing the unit without parking as it was $60,000 less but as December 31st 2020 arrived the client changed her mind and although I was ok with her not buying parking, most real estate experts would agree that a unit with parking in Toronto will have more value overall as have a place to park your car in Toronto is becoming more and more a luxury and at the time of resale, a unit with parking has more value and will increase the customer base at resale.

So there I was, a contract almost signed but in order to give my client the best possible service, we decided to put an offer on a competing property that offered a parking and also the “promise” of a locker.   I say the “promise” of a locker” as some Builders do not offer a locker included in the purchase price, but inform their clients that lockers will be available closer to occupancy and that an additional $5000 will be required to obtain one but there is no clear “waiting list” for these ancillary items.  This statement made my client highly uncomfortable but we went ahead with an offer on Dec 31 2020 while pushing the other agent to wait for an answer until January 2nd because my client needed to think about it more and did not want to rush for a decision on Dec 31 and Jan 1st 2021. A credible excuse but one that gave us time to pursue this other opportunity.

On January 2n 2021 the second deal was sealed after many hours of forward and backwards – trying to getting signature from the Vendor on deal that was both fairly quick and at a very good price. It was a beautifully crafted and required monies as follows:

$40,000 deposit and the rest of the money and profit upon builder’s consent. 

We settled on $80,000 deposit and $176,000 on a +$800K property.    The value of which would be easily $950 to $1M in a few months as the Builder was selling similar units around that price range but did not have the same layout and exposure.

The offer remained conditional on two main conditions to be waived in 10 days by January 12 2021. The solicitor and financing condition.

Assignments  have become more and more popular as a real estate product in Toronto because the amount of units being built and the thirst of investors wanting to buy into the TorontoRealestate dream.

Assignment are only available in a finite amount of time and one can only know about assignments through a network of agents as very few are allowed to be listed on public listing services like the MLS.  There are restrictions put in place by the Builder who whould prefer not have competing products in their own building and although most will included an assignment clause in the original APS they would prefer to avoid the hassle of dealing with reassigning the contract to another customer.  They do offer they assignment clause as they would hate to lose their first buyers but will only allow the assignment at a time where for example they are 75% sold and well under construction.

The game of the assignment from the Assignee and Assignor however is to be able to secure the contract at a time where we know the building is too far along the way which has its pros and cons.

The further along the building still has until occupancy and final registration (final closing or registration) the better the deal the Assignee is likely to get for the property- ( the assignment contract) , the risk is theoretically greater for the assignee that the building will not finish but this risk is rewarded with a less than market value price typically for the same ready made property or if buying for the Builder IF there is any inventory left.  For this lower price, the Assignee has to have a larger amount of money available as cash – typically 20-25% of the property value that has to be available unencumbered to come up for the Deposit, the Profit and also many of the expenses that come with buying a preconstruction including Land transfer taxes and the $24,000 HST to be paid at closing. (subject to a rebate but needs to be in hand nevertheless)

Because of the complexity of the original APS and different expenses that will arise, a specialized real estate lawyer needs to be involved.   Unfortunately, many lawyers will advertise as expert in all things real estate buy in essence are only looking to capture a client business.  They get paid either a deal closes are not and for the vast majority advising on an assignment represents a much greater risk if a builder does not close and would prefer to caution a client rather than educate and show all risks and benefits for such a transaction. 

This is how we lost the real estate deal-   When we were going through the negotiation, I asked my client if she had a lawyer specializing in deals like these.  The answer was no.   Once the deal was close,  all real estate agents know that that period between signatures and a firm deal is very precarious and can unravel at any second.   This was no expection.   When I introduced my client via email to a trusted assignment real estate lawyer, he proceeded by telling her what services he would provide and the cost associated with this service.  Caution:  because of the complexity of a preconstruction contract, an assignment expert will cause more money anything from $2500 plus $1000 to review a contract in more details.   This is were clients tend to get very “cheap” and on the purchase of a $800K property, the cost of a good lawyer becomes exorbitant,  family and friends come out of the wood working with the name of a fabulous lawyer in business for over 30 years and that will charge much less.  The problem with these last minute lawyers is that they have no skin in the game- paid for that one recommendation and been in the business for so long that newer investment vehicles are not seen with an astute investor’s eye but with a prehistoric one.  It’s like asking a person to understand the benefits of TIkTok when they just joined Facebook and think themselves avant-garde for doing so and sharing with their one time clients how much experience they have.   –

Upon reviewing the Agreement, the lawyer or assistant proceeded to write directly on the final contract changing the clauses already written and then proceeded to change the irrevocable date directly on a signed contract.  Any real estate agent, broker and lawyer would tell you that this makes any offer nul and void and only an Amendment can be used to make changes – but regardless of perhaps this contract technicality it was the clauses that killed the deal.

The Assignee’s lawyer was asking for different structure of payment for the payment of the assignment.  He was requesting that the Assignee pay the deposit on Builder’s consent (typically 2-6 weeks) and then the final payment to Assignor on final closing of the property.   At first the Assignor’s agent misread the clause as it was poorly written but upon closer inspection it was clear, the Assignor was not going to get his full money back until the property was registered and title transferred to the Assignee which would be according to the estimates at least 12 months from now.

As an agent specializing in assignments, I was shocked! Such a payment structure defeats the whole essence of an assignment!  Waiting a whole year or longer to get the money, the Assignor would have no incentive to sell the property at today’s value only to be paid later.  The whole point of the assignor is to sell now because the money is needed now-  if he had the personal choice to wait to sell it later, might has well just close on the property and get a higher price at a later date.  Why deal with this assignment headache if the money cannot be taken out and put to another purpose?    

I contacted the lawyer to understand his logic but was answered in typical lawyer fashion trying to save face as in that is how we always do assignments deals and we are protecting our client.  When I pressed him, while I had my client on the conference call, he admitted that the risk for the Assignee to pay the Assignor (deposit and profit) at the Builder Consent represents a small risk but at this point the Assignee was overtaken by fear and decided to trust this new lawyer as opposed to the one fighting for the deal and trusting the process.   The lawyer admitted that such a clause would not be met favourably by the Assignor and he was right.   IN the end I tried to convince to Assignor to allow us to hold back $20,000 until the final closing but the lawyer, in an attempt to save face, still explained that the risk was there until the final closing and that it would not be enough.  If the building does not close and the builder declares bankruptcy, it would be impossible to go after the Assignor in case of default.  In theory, that could happen but would be a remote risk with a reputable builder in this case with a building with all structure buitd and already reaching 40 floors into the sky.    So the condition period arrived and ended- I extended the condition period by 2 days in the hopes of allowing all parties more time to think,  the lawyer request that $140K bet kept until final closing but of course, the Assignor had no interest in such an arrangement- and I can’t blame him.  And, honestly, I feel bad for my client who got talked out of a great assignment deal in a great building that constructions timelines corresponded with her personal timelines.  Does it mean other assignements will not become available in that building,  perhaps but as will all things, the assignement period shrinks, also do the deals.  

Lessons Learned:

A good and detailed discussion with a client must be made to address all concerns regarding the assignment process.   No detail is too small

Getting a the right lawyer is primordial-  Yes the lawyer must have the clients best interested at heart but must also weigh in the proper risk and not simply convince the client that a resale is probably safer.  That is not the point-  his job is to explain the process and properly explains the pros and cons.   No risk no reward.   An assignment is a greater risk than a resale as you are not getting a physical product right away but it does not make it risky to the point of running away from it!   There are thousands of pre-construction units being built in Toronto with thousands of people holding on to legitimate contracts.  According to this lawyer, these people are wrong to buy pre contruaction contracst cause anything could happen to the builder and they would loose their money!  thisis is obviously not the case and many are profiting form engaging in this aspect of real estate investing.

A proper assignment real estate lawyer should review and discuss with the Assignee the Agreement itself and moneys to be disbursed

Issues to be discussed:

  1. The Assignment Agreement including deposits to be paid, assignment fee (profit) and conditions to be fulfilled
  2. HST Rebate
  3. Original Vendor Agreement of Purchase and Sale Adjustments  ie extra charges by the Vendor including Capped Costs
  4. Vendor Warning Clauses and explaining how the agreement is extremely one sided in favour of the Vendor and the certain uncertainties that come with purchasing a pre –construction .
  5. Review Vendor’s termination clauses For examples: a vendor must sell at least 75% of the dwelling units by a certain date, otherwise the may cancel the deal-  other clauses my included that the Vendor myst obtain financing on terms satisfactory to the Vendor by a certain date or they may cancel the deal.  All of these are typically included in the contract and a lawyer will put a perspective on these type of clauses and that they exist to protect the Builder but that ALL the units on the product are at risk- 
  6. Condo disclosure package
  7. Interim Occupancy closing and what are the anticipated dates and what you are allowed to do during that time with your unit (ex can you rent it out?)-  Interim Occupancy will be part of another blog-
  8. Pre-Delivery Inspection (PDI)
  9. Tarion Warranty
  10. Final Closing and the right of the builder to delivery a product that does not necessarily look like what was expected.
  11. Common Expenses/ maintenance free and condo fees.