Selling Your Pre-Construction Condo Before Closing in Ontario

An assignment sale means you sell your place in a pre-construction condo purchase to someone else before the unit closes. Buyers sometimes consider it when plans change, money gets tight or the market moves.

This article explains in general terms what to look at before you try one. The rules on assignments, consent and tax depend heavily on your agreement and your finances, so treat this as a checklist for conversations with a lawyer and an accountant.

What an assignment sale is

When you sign a pre-construction agreement, you promise to buy a unit that does not yet exist. In an assignment, you transfer that promise, and your rights under it, to a new buyer. The new buyer steps into your position and usually pays you for it.

Because the new buyer takes over your agreement, the quality of that agreement, and what it says about assignments, matters a great deal.

Does the builder have to consent?

Many agreements say whether you may assign and on what terms, and some require the builder's written consent or allow it to refuse. Read the assignment clause carefully, and do not advertise or sign anything until you know what it requires. A lawyer can read it with you and tell you what it means in practice.

A pre-construction agreement is not binding until the buyer has received both the disclosure statement and Ontario's Residential Condominium Buyers' Guide from the builder. If you are still within the 10-day cooling-off period, you may be able to rescind the agreement instead of assigning it. That period starts once you have the purchase agreement, the disclosure statement and the Condo Buyers' Guide.

What the new buyer inherits

A new buyer will want to know about the risks that come with the project. These are some of the points a careful buyer, and the lawyer advising them, will look at.

• Deposits: money a builder receives, including deposits, must generally be held in trust under the Condominium Act.
• Cancellation conditions: the builder can cancel only under early termination conditions listed in Schedule A of the Tarion Addendum, each with a date.
• Occupancy dates: the Statement of Critical Dates in the Tarion Addendum sets the occupancy dates.
• Interim occupancy fee: during interim occupancy the buyer pays a fee whether or not they move in, and it cannot exceed the total of monthly interest on the unpaid balance at the prescribed rate, estimated monthly municipal taxes and projected common expenses for the unit.

If you remain liable under the agreement after assigning, a problem with the project could still affect you. Ask a lawyer whether you stay on the hook.

Tax and legal risks

Selling your rights for more than you paid can have tax consequences, and how the profit is treated depends on your circumstances and your purpose in buying. An accountant can explain how it applies to you, and it is better to ask before you sign than after.

Other risks are practical. An assignment that breaks a clause in your agreement could put your deposit and your deal at risk, and a buyer who finds the project is cancelled or delayed may look back to you. Written terms that clearly say who pays what, and when, can reduce disputes.

What to do next

• Find the assignment clause in your agreement and note any consent or fee requirements.
• Ask the builder in writing what its assignment process is.
• Collect the agreement, Tarion Addendum, disclosure statement and deposit receipts.
• Speak to an accountant about tax on any gain before you list or sign.
• Have a lawyer review the assignment agreement and tell you whether you remain responsible after the sale.
• Do not give up your deposit rights or sign a release until you understand the effect.

Frequently asked questions