Builders and Assignment Incentive Issues

We complete many Assignment transactions and have recently come across a significant issue with more and more builders and affecting clients buying or selling a unit by way of Assignment.

After the transaction between the New Buyer (Assignee) and Seller (Assignor) is firm, and formal application for consent to the Assignment is made to the Builder, the Builder is insisting on removing certain incentives that the original Buyer/Assignor may have received under the terms of the original Builder Agreement. Such incentives can be quite substantial and range from caps to development charge levies, to common expense credits, to other incentives given at the time of the original purchase. The New Buyer/Assignee is then effectively asked to pay more for the property on final closing than was anticipated under the terms of the Assignment Agreement. This is resulting in disputes between Assignors and Assignees as to who is responsible for such extra costs. It is a difficult problem to resolve because the Assignor and Assignee have a firm agreement, subject only to the Builder’s consent, and that Agreement does not contemplate who will pay for these extra costs.

Some recent examples of this are:

• On a Large Project on Adelaide St., East – the Builder deleted the Development Charge cap, common expense credit and free leaseback provision. As part of the builder consent document, they only replaced the Development Charge cap, at a significantly higher amount; and
• On a project at Yonge and Eglinton– the Builder deleted the Development Charge cap (which was $0) and did not replace it. This means the New Buyer/ Assignee would be fully responsible for increases in development charge rates from July 1, 2015, which may amount to thousands of dollars.

If you are acting for a New Buyer/Assignee we would suggest the following clause to protect your client:

It is understood and agreed that the Assignee is taking an Assignment of the original Agreement of Purchase and Sale with the Builder/Vendor as it currently exists and as reviewed by the Assignee and his solicitor, including all incentives, adjustment caps, upgrades, etc.. In the event that the Builder/Vendor removes any such incentives as a condition of granting consent to the Assignment, or in any way requires an amendment to the original agreement such that the Assignee will incur expenses in addition to those set out in the original agreement with the Builder/Vendor as reviewed by the Assignee, the Assignor agrees that the costs and value of same will be deducted from the balance due to the Assignor on Final Closing.

If you are acting for the Assignor we would suggest the following clause to protect your client:

The Assignee agrees and understands that as a condition of granting consent to this Assignment the Builder may withdraw or remove incentives provided under the terms of the original Agreement with the Builder. In the event that the Builder removes any incentives as a condition of granting consent to the Assignment, the Assignee nevertheless agrees to proceed with the Assignment and accept any related costs or increase to the price to be paid to the Builder on final closing.

Another option is to make the Assignment Agreement between the New Buyer/Assignee and Seller/Assignor conditional on there being no changes made to the original Agreement with the Builder. In that regard, we suggest the following addition to the standard condition on Builder’s consent clause:

This Assignment Agreement is conditional on obtaining consent from the Builder to the Assignment without any amendments or changes to the existing Agreement of Purchase and Sale with the Builder/Vendor.

If you are in the middle of an Assignment deal right now, we suggest that you amend your clauses immediately!

If you are working on the purchase of a Preconstruction Condominium with a client who is being told that the purchase includes a right to Assign the property to a New Buyer, we recommend that during the initial signing of the Builder’s Agreement, within the 10-day cooling off period, that the following clause be inserted to protect your client:

The Vendor agrees that in the event of an Assignment of this Agreement the Assignee will not be required to accept any changes to this Agreement. In particular, any amendments, incentives, adjustment caps, or upgrade credits, etc. in this Agreement will apply and be transferred to the Assignee.