Assignment of Residential Real Estate Transactions – Part 2 of 3

By Nathan Serratore of Merovitz Potechin LLP on Thursday November 9, 2023.

This is part 2 of our three-part series on assignment of residential agreements of purchase and sale. Click HERE to go back and read part 1 if you have not already done so. 

In part 1 we discussed the circumstances when it is possible for a purchaser to assign their interests in a transaction elsewhere. This said, just because an assignment is possible doesn’t mean it will be the right choice for every purchaser looking to exit their deal. In this second installment to our series, we will look into the risks of assignment, the possibility of a purchaser continuing to remain liable for the transaction even after assignment, and strategies to mitigate that risk.

Part 2: Continuing Liability after Assignment

Where a purchaser wants out of their transaction, determines that assignment is available to them, and they find a willing assignee to take their spot in the deal, a prudent assignor will seek to ensure that they sever any ongoing responsibilities in connection to that transaction. This, however, is not guaranteed in all circumstances. 

If the Agreement of Purchase and Sale explicitly provides a right of assignment without the consent of the vendor (in the context of residential real estate transactions, this is quite rare), then the assignee takes on all liability under the Agreement once assigned and the assignor is relieved from their obligations. If issues arise later down the line, the vendor could then in theory only seek to recover their losses from the assignee and not the assignor.

However, where the Agreement requires the vendor’s consent for an assignment, and that consent is obtained, it will only sometimes be the case that the assignor is relieved of their liability. Mindful assignors will take steps to ensure that there are provisions in the assignment document clearly transferring all liability to the assignee and relieving the assignor from their former obligations. When completing an assignment in these circumstances, be sure to speak to your real estate lawyer to include these provisions. 

Assignments in the context of new build homes and condominiums are usually not permitted without first obtaining the builder’s consent. By extension, even if an Assignment Agreement is signed by all parties, the assignor is usually contractually bound with respect to the home or condo until closing occurs. This gives the builder more security, even if it agrees to consent to an assignment as a courtesy, that closing will occur and all parties will be subject to the applicable damages if it does not. Purchasers assigning their interests to an alternative buyer should be aware of their risks, and that they likely remain exposed to consequences if the deal falls through. 

Where the Agreement of Purchase and Sale does not comment on whether assignment is available, the assignor’s continuing liability will depend on the context of assignment – specifically, whether the vendor is involved in the assignment process, and whether indemnification provisions are built into the agreement. The mechanism by which the assignment is completed, and the specific terms that are agreed to, will impact whether the assignor’s exposure continues after assignment. More details with respect to this particular issue will be discussed in part 3 of this series. 

Key Takeaways

• Assigning your APS to another purchaser does not automatically relieve you from responsibility if the transaction fails.

• Assignors may still be held liable for the consequences of a failed transaction if assignment was completed without the consent of the vendor and without the assignor being indemnified. 

• Assignment of transactions for new home builds and condominiums usually require the builder’s consent. In these cases, the builder will often require that the assignor remain liable until closing as security and to ensure that the deal closes without incident.

• Depending on the circumstances, assignors may wish to take additional steps to ensure they are indemnified from liability after an assignment;

• Speak with a real estate lawyer about indemnity agreements and what they mean before you consider assigning your deal;