An assignment allows a buyer to assign the rights in a contract to someone else before the original sale completes. Assigning one’s right to a contract is a legitimate practice allowed by common law and Section 36 of B.C.’s Law and Equity Act.
As of May 16, the B.C. government, reacting to concerns that some unscrupulous agents were flipping residential assignments for profit without the original seller being aware of it, will require contracts prepared by real estate licensees to include clauses stating that the contract cannot be assigned without the written consent of the seller and that any profit from an assignment goes to the initial seller.
“This might not be a big deal in the residential world, where assignments are rare and in buyers’ personal names, but for us in the commercial business, the majority of contracts are assigned to a new company for tax reasons, etc.,” said Mark Goodman, an agent and multi-family specialist with HQ Commercial of Vancouver.
Goodman estimated that 90% of commercial sales are assigned to a different entity before a deal closes.
For instance, a buyer may purchase a rental apartment building and, before the original deal is closed, transfer title to a buyer-controlled numbered company, a holding company or a trust.
In some cases, separate companies might be set up to handle commercial leases on a property.
“There is no lift in value,” Goodman said. “It is done for tax and management purposes.”
Goodman complained the new legislation is “a knee-jerk reaction by the government that will just result in unnecessary paperwork” for commercial agents.
Commercial realtor Lance Coulson of CBRE said flipping assignments for profit is rarely seen in commercial real estate because of the sophisticated nature of the participants.
“There is significantly more due diligence [than in residential],” said Coulson, who has sold some of the largest multi-family parcels in B.C. over the past two years.
“Our clients have some of the best lawyers in the country. They know what they are doing.”
Rob Greer, principal with Avison Young, a commercial agency, agreed that selling commercial real estate assignments for profit is rare, “and with this new legislation it will become even more uncommon.”
But Neil Hamilton, a senior property adviser on both residential and commercial sales with Macdonald Realty, Vancouver, said the new legislation could prove to be a market disruption.
“This new legislation will protect consumers from the very few unscrupulous realtors that have taken advantage of our current high-pressure market conditions. I only hope that it won’t frustrate legitimate [residential] assignments where the buyer cannot complete due to reasons beyond their control, or in commercial transactions where contracts are routinely assigned to corporations for above-board business reasons,” he wrote in an email to Business in Vancouver.
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