Understanding the Pros and Cons of Buying a Condo on Assignment in Ontario

Buying a condo on assignment in Ontario can seem like an appealing shortcut to owning a pre-construction unit. Instead of waiting for a developer to release new units, you step into someone else’s contract and take over their purchase. This approach offers unique opportunities but also carries risks that buyers must understand before committing. This guide breaks down what an assignment sale is, the advantages it offers, the potential pitfalls, and key factors to watch out for.

Modern condominium building in Ontario, representing pre-construction units available for assignment sales.

What Is a Condo Assignment Sale?

An assignment sale happens when the original buyer of a condo unit, known as the assignor, transfers their purchase contract to another buyer, called the assignee. This usually occurs before the assignor takes possession of the unit, often during the pre-construction phase. The assignee steps into the assignor’s shoes, assuming all rights, obligations, and future payments outlined in the original agreement with the developer.

Developers typically require approval for assignment sales, and the original purchase contract may include fees or administrative conditions related to the assignment. Since May 7, 2022, Ontario law requires that GST/HST be applied on the profit made from assignment sales of newly constructed or substantially renovated residential properties. In some cases, the tax applies to the total sale price, which can affect the overall cost.

Understanding these legal and financial details is crucial before proceeding with an assignment purchase.

Pros of Buying a Condo on Assignment

Access to Desirable Units

Developers often sell out popular buildings or specific units quickly. Assignment sales provide a chance to buy a unit that is no longer available directly from the developer. For example, if a particular floor plan or view is highly sought after, assignment sales might be the only way to secure it.

Built-in Appreciation Potential

If the real estate market has increased since the assignor’s original purchase, you might acquire the unit at a price lower than current market rates. This can mean instant equity or at least protection from paying inflated prices that new buyers face.

Shorter Wait Times

Because the contract is already in place, construction may be well underway or nearing completion. This means you could move in sooner than buyers who purchase directly from the developer at the start of the project.

Inherited Builder Perks

Assignment buyers often benefit from the original purchase agreement’s perks. These can include warranties like those provided by Tarion, capped development charges, or upgrades and appliances already negotiated by the assignor. These benefits can add value and reduce future costs.

Cons and Risks to Watch Out For

Developer Restrictions and Fees

Some developers do not allow assignment sales at all. Others impose strict conditions or charge assignment fees that can reduce the financial advantage of buying on assignment. It’s essential to review the original purchase agreement carefully to understand these limitations.

Additional Costs and Taxes

The updated GST/HST rules mean assignment sales can trigger significant tax liabilities. If the profit on the sale is substantial, the assignee must pay GST/HST on that amount, which can add thousands of dollars to the purchase price. Buyers should budget for these taxes and consult a tax professional if needed.

Limited Control Over the Unit

Since you are stepping into an existing contract, you cannot negotiate directly with the developer on price or upgrades. The terms are fixed, and you inherit the assignor’s choices. If the unit has design features or finishes you dislike, changing them later could be costly.

Risk of Market Fluctuations

If the market declines between the assignor’s purchase and your assignment sale, you might pay more than the unit’s current value. This risk is especially relevant in volatile markets where prices can shift quickly.

Complex Paperwork and Legalities

Assignment sales involve transferring contracts and require careful legal review. Mistakes or misunderstandings can lead to disputes or financial loss. Hiring a real estate lawyer experienced in assignment sales is highly recommended.

Practical Tips for Buyers Considering an Assignment Sale

• Get Developer Approval Early: Confirm the developer allows assignments and understand their process and fees.

• Review the Original Agreement: Look for any clauses about assignment fees, restrictions, or conditions.

• Calculate All Costs: Include the purchase price, assignment fees, GST/HST taxes, and legal fees to understand the total investment.

• Inspect the Unit or Model: Visit the site or a model unit to ensure the condo meets your expectations.

• Consult Professionals: Work with a real estate agent and lawyer familiar with assignment sales to navigate the process smoothly.

• Understand the Timeline: Know when construction is expected to complete and when you will take possession.

  
  

Final Thoughts

Buying a condo on assignment in Ontario offers a unique way to access pre-construction units that might otherwise be unavailable. It can provide financial benefits like built-in appreciation and shorter wait times. However, it also comes with risks such as developer restrictions, additional taxes, and limited negotiation power. Frequently Asked Questions

1. What are the risks of assignment sales? Risks include developer refusing or restricting the assignment, high upfront costs (deposit + premium), unforeseen legal fees, market decline between contract and closing, delays in construction/occupancy, and less negotiating power.
   

2. Is assignment sale taxable? Yes. Under Ontario law (since May 7, 2022), assignment sales of newly constructed or substantially renovated residential units are generally subject to GST/HST on the profit. Income from the assignment (profit) is also taxable, potentially as business income.
   

3. What is the deposit for an Assignment sale? The assignee usually has to match or “mirror” the deposit already paid by the assignor to the builder. That means if the original buyer put down, say, 20–30%, you’ll need that amount plus additional sums (premium, fees) depending on the deal.
   

4. What are the tax implications of an Assignment of contracts?

   • HST/GST on profits (and sometimes the full consideration including deposit) depending on timing and agreement wording. 

   • Income tax: profits may be taxed as business income rather than capital gains depending on your intent, frequency, and structure. 

   • Deposit reimbursements generally not taxed if properly specified in the contract.
     

5. What is the purpose of an assignment contract? The purpose is to allow the original purchaser (assignor) to transfer their rights and obligations under a purchase contract (often pre-construction) to a new buyer (assignee) before final ownership/occupancy. Common reasons include: recouping deposit + profit without waiting for finishing, avoiding delays or obligations, and providing buyers access to units no longer available or priced higher.