There have been several reports lately of the impact of the COVID-19 pandemic on Toronto’s short-term and long-term condo rental market. Travel has severely decreased throughout the country as people have been exercising caution and largely staying home. Quarantine protocols have also had an impact, making people less likely to travel internationally, or even inter-provincially. As a result, Toronto investors have found condos they purchased to earn short-term rental income have largely been sitting empty and in turn, and many have decided to place these units on the traditional rental market instead. This has resulted in a massive jump in the number of rental units available, meaning that landlords are finding themselves in the position of reducing rental rates and even offering incentives to potential renters to secure ongoing income for their investment.
Given the difficulties in securing tenants, those who purchased new construction condos in the past couple of years for investment purposes, but have yet to take possession, may be wondering if they have options to get out of their obligations before construction is complete. While it will likely not be possible to simply cancel the transaction, buyers may have the option to assign their purchase to a new buyer, effectively having another party step in and replace them as the buyer in the transaction.
However, there are several things to consider, both for the assignor and the assignee, before starting the process to assign a condo purchase. First and foremost, it is vital to check the Agreement of Purchase and Sale to see if the builder will allow an assignment of interest; if not, the points below may be moot. Even in cases where the builder will permit an assignment, there may be hefty fees involved. A buyer looking to assign their purchase should be sure to have a skilled real estate lawyer review the Agreement before taking any further steps, to ensure they are aware of their rights and obligations.
Considerations for Assignors and Assignees of a New Condo Purchase
- As an assignor, you are selling your interest in the property, and not the property itself. This is because you are not yet an owner, and therefore you will not be able to change the price in order to make a profit from the assignment, as you might be able to do if you waited to sell the property after closing. In an assignment, you are simply transferring the contract as it exists. As an assignee, this can be a considerable benefit if condo prices have gone up considerably since the original agreement was made.
- There will be additional costs at closing that must be paid by the assignor, assignee or a combination of the two. For example, there will be adjustments for items such as utilities, new appliances, and more. When negotiating the terms of the assignment, these costs will have to be accounted for and assigned as well. It is important for an assignee to be aware of all of the costs of closing under the specific Agreement of Purchase and Sale.
- The assignee may be responsible for paying HST on the cost of the condo if they don’t plan to live there. If the assignee is purchasing the unit as an investment instead of a residence for themselves, they will have to pay HST on the purchase at closing, which amounts to 13% of the purchase price.
- The assignee should keep in mind certain things unique to buying a new construction condominium:
- They will likely be able to take possession before the purchase is closed. A condominium unit might be deemed ‘ready for occupancy’ before the entire project is complete. If this is the case, the buyer will generally be permitted to occupy the premises in what is called an ‘interim occupancy period’, during which they will pay a monthly fee to the builder until the transaction is closed and they transition to paying mortgage payments instead.
- They will be subject to the usual construction delays that can occur with new construction, so the projected closing date on the Agreement of Purchase and Sale may not be written in stone.
- The purchase will be covered under warranty by the Tarion New Home Warranty Program, giving the assignee the added protection of warranties for construction defects they may not discover until after closing.
- Depending on when in the process the assignment takes place, the assignee may be able to have input on final finishes and potential upgrades.
If you are considering assigning your condo purchase or taking on another person’s condo as an assignee, it’s important to be aware of the potential legal and financial repercussions. Have the Agreement of Purchase and Sale carefully reviewed by a skilled real estate lawyer before you commit yourself to anything, to ensure you don’t run into costly surprises down the road.
The real estate lawyers at GLG LLP in Toronto assist clients with a full range of residential real estate services, including purchases and sales, financing and even litigation if necessary. The firm offers exceptional client service as well as a Bay St. experience with more reasonable rates. Call 416-272-7557 or complete the online form to arrange a consultation.