Assignment Terms – It’s All in the Contract #546
Licensees must ensure they read the terms of real estate contracts carefully and explain them to their clients. This is especially true when it comes to assignment clauses contained within contracts.
Within the past number of years, the government has imposed laws and regulations around assignments in order to protect sellers, prevent ‘shadow flipping,’ and ensure transparency. In May of 2016, the Real Estate Services Act was amended to impose a restriction on the Assignment of Contracts of Purchase and Sale unless the seller was provided with a specified form of notice. The new restriction was imposed to try and prevent ‘shadow flipping’ and ensure sellers were protected from potentially having the contracts to sell their homes assigned by buyer(s) in a heated market. As a response to this restriction, section 20.A was inserted into the Contract of Purchase and Sale form created by the British Columbia Real Estate Association. A few years later, in January of 2019, the Real Estate Development Marketing Act was amended to include policy statement 16, which requires contractual terms related to pre-sale assignments to be included in all pre-sale contracts, including that a developer must not consent to an assignment unless the developer collects and reports prescribed information about the assignor, assignee and the assignment.
While these new measures can assist in protecting consumers, assignment clauses still need to be considered carefully in contracts. A recent case, Lau (Re) 2020 CanLII 12248 (BC REC), highlights this. The licensee in Lau was disciplined for failing to advise a client about the assignment terms contained within a pre-sale contract. In Lau, the licensee told the buyer prior to entering into the contract that they could assign the contract prior to the completion date with the developer’s consent and that “pre-sale contracts have been known to be assigned prior to completion for a profit.”1 However, the actual pre-sale contract entered into in Lau specified the buyer could only assign to a spouse, parent, child, grandparent or grandchild, provided two conditions were met. Firstly, the three deposits must have been paid in full, and secondly, the developer must have consented. The contract did not allow the buyer to assign to a non-arm’s length party. Additionally, the contract specified that the contract could not be assigned for a period of 12 months after the date of the contract. The licensee did not go through the terms of the contract with the buyer and admitted that he did not adequately explain the restrictions on assignment.
The buyer filed a complaint with the Real Estate Council of BC and told them that because she could not assign the contract prior to the completion date, she was forced to obtain an additional mortgage to help pay for the closing costs for the property.
Whenever reviewing or drafting contracts, licensees need to consider the application of existing laws and regulations, along with principles of contract drafting. When looking at assignment terms, licensees must consider both the restrictions/prohibitions and permissions contained in a contract. For example, what kind of assignments are permitted? Are there specific assignments that are restricted or prohibited? Are there conditions placed on the assignment? Recently a contract came across my desk that permitted a specific type of assignment (an assignment to an affiliated company) however, the language used in the assignment provisions did not contain a corresponding prohibition on other types of assignments, meaning the buyer could have assigned the contract to anyone which was not the drafters intent. Consideration also needs to be given for any conflicting assignment terms - this is especially true with the addition of clause 20.A. in the standard Contract of Purchase and Sale form.
Assignments have been a hot topic in British Columbia for a long time, and Lau highlights the importance of ensuring that agents review, understand and explain assignment terms to both buyers and sellers. Additionally, licensees must ensure that they do not become complacent in assuming standard (or required) assignment terms are contained in contracts.
|1.||Lau (Re), 2020 CanLII 12248 (BC REC), at para 9 and 10|
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