Selling a Pre-Construction Unit Before It Even Closed

The situation

Four years earlier, Lucia had signed an agreement of purchase and sale with a builder for a pre-construction residential unit in Sault Ste. Marie, paying her deposits in instalments as construction progressed. She ran a dental practice and had bought the unit purely as an investment, with no plan to live in it. By the time the building neared completion, the unit's value had climbed well past what she had agreed to pay, and a buyer had come forward with an offer that made selling before the final closing more attractive than completing the purchase herself and reselling later.

Selling before a pre-construction unit is registered as real property is called an assignment: instead of transferring title, the original buyer transfers their rights and obligations under the agreement of purchase and sale to a new buyer, who then completes the purchase directly with the builder. Lucia had a buyer, Khalil, ready to step into her place. What she did not have was a clear picture of what standing in her way — or what the deal would actually cost her once it closed.

Lucia came to us after Khalil's offer was already on the table, wanting the paperwork moved quickly. Her instinct was reasonable — an assignment sale is, at its core, a contract change rather than a full real estate closing, and she assumed it would move faster and cost less than a normal resale. It usually does move faster. It is rarely simpler, because two parties beyond the buyer and seller have a say in how it happens: the builder, who holds a veto over whether the assignment can proceed at all, and the tax rules that apply specifically to unregistered new construction rather than to an ordinary resale home.

What the review found

Two problems surfaced once our team pulled the original agreement of purchase and sale and worked through the numbers with Lucia.

The first was in the contract itself. Nearly every pre-construction agreement includes an assignment clause, and Lucia's was typical: any sale of her interest required the builder's written consent, which was entirely at the builder's discretion, and came with a flat consent fee payable to the builder on top of the price agreed with Khalil. The clause also barred her from publicly marketing the unit — no listing service, no signage, no open advertising — until the builder had signed off. Lucia had already mentioned the unit to a few contacts and hadn't realized that alone could put the deal offside the contract she'd signed.

The second problem was tax, and it was the more expensive of the two. Lucia's original purchase price with the builder was roughly $1,050,000, including the deposits she had paid over four years. Khalil had offered $1,300,000 for the assignment — a profit of about $250,000 over what she had agreed to pay. Lucia had assumed that profit would be taxed the way a capital gain on real estate normally is. It was not that simple on two fronts. First, because she had bought purely as an investment and was selling before the unit was even hers to occupy, the Canada Revenue Agency could reasonably treat the profit as business income rather than a capital gain, taxed in full rather than at the partial inclusion rate a capital gain receives. Second, and separately, assignment sales of new-build homes are treated as a taxable supply under current GST/HST rules — meaning HST applies to the profit portion of the deal, not just to the price of a finished home the way most buyers expect. Nobody had flagged either issue to Lucia when she accepted Khalil's offer.

What we did

1. Read the assignment clause before touching the marketing. We confirmed the builder's consent requirement and the flat consent fee in the original agreement, and made sure Lucia stopped any informal shopping of the unit until consent was in hand, so the deal already made couldn't be jeopardized by a technical breach of the contract.
2. Applied to the builder for consent early. Builders can take several weeks to process an assignment request, and Lucia's interim occupancy date was approaching. We submitted the request, the identification the builder required for Khalil, and the consent fee as soon as the assignment agreement was in draft, rather than waiting for every other term to be finalized first.
3. Brought in Lucia's accountant, Karim, on the HST question before the price was fixed. Once it was clear HST applied to the $250,000 profit, we worked out that roughly $32,500 in HST would be owing on the deal. Rather than leaving that as a surprise at closing, we built it into the assignment agreement as an amount Khalil would pay in addition to the purchase price, consistent with how HST is normally passed to a buyer on a taxable sale, and had our accountant confirm the mechanics of remitting it.
4. Negotiated the builder's consent fee down. The agreement set the fee at the builder's discretion up to a stated maximum. We pushed on the basis that Khalil was a qualified buyer with financing already arranged, closing the file cleanly for the builder with no risk of delay. The builder agreed to a fee of $15,000, below what it could have charged.
5. Drafted the assignment agreement to close before interim occupancy. Once a pre-construction building reaches interim occupancy — where buyers can move in before the condominium is legally registered — some builders restrict further assignments or add extra conditions. We set a closing date for the assignment that gave enough time for the builder's consent and Khalil's financing to come through, while landing before that window closed.
6. Flagged the business-income question for Lucia's own return. We could not tell Lucia with certainty how the Canada Revenue Agency would characterize her profit, since that turns on the specific facts of her purchase and her stated intentions at the time. We set out the risk plainly and left the final filing position to her accountant, who had the fuller picture of her other income and holdings.

The outcome

The assignment closed roughly ten weeks after Lucia first came to us, ahead of the building's interim occupancy date. Khalil paid the agreed $1,300,000 purchase price plus the roughly $32,500 in HST on the profit, and completed his purchase directly with the builder on the original closing schedule. Lucia received her deposits back along with her profit, less the $15,000 consent fee. Because the HST was collected from Khalil and remitted straight through to the CRA, it did not come out of Lucia's own proceeds. On paper, her net gain came to roughly $235,000 over her original purchase price, before whatever her accountant determined she owed in income tax on that amount.

The deal that Lucia had originally shaken hands on with Khalil did not change in substance — the price stayed the same, and both sides got what they expected. What changed was that every cost the transaction actually carried was accounted for and priced in before anyone signed anything, rather than discovered afterward. A deal that looked like a straightforward $250,000 profit on paper was, once the builder's consent fee was built in, a $235,000 profit before income tax — and Lucia went into closing knowing that number rather than finding it out from a bill.

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