Mortgage Blog

In BC, Check Your Listing Agreement for an Assignment Clause

June 16, 2016 | Posted by: Kelleway Mortgage Architects

As of May 16, 2016, the Real Estate Council of British Columbia (RECBC) now requires that your licensed realtor include a contract clause notifying you of assignment terms with regard to the sale of your property. To this effect, the provincial government has amended the Real Estate Services Regulation.

Why did the government issue new requirements? That action was designed to prevent situations in which a buyer obtains an accepted offer to purchase a property and then, prior to the closing date, transfers their interest (i.e., reassigns the contract) to another buyer at a higher price. Premier Christy Clark was quoted as saying:

'Government will not tolerate unethical or predatory conduct in the real estate market,' Premier Clark said. 'These rules will increase transparency and make sure that sellers' best interests are protected. Real estate licensees must act in the best interests of the client - not themselves.'

These new rules now require that the seller’s consent is required for any contract assignment and to mandate that any profit from an assignment be returned to the homeowner.

Basically, the purchase contract was previously like a “hot potato” during the time that the original offer was accepted by the property seller up until the last holder of the assigned contract closed on the sale of the property and paid the latest agreed to price. Prior to this regulation, the owner of the property was not necessarily entitled to any additional profit resulting from the contract being “reassigned” multiple times at higher prices to consecutive buyers prior to closing. The interim buyers reassigning the contract were the ones receiving the net profit gained between the original priced offer and the next offer all the way up to the closing date. In effect, these interim buyers (if successful) were making money on the sale of the property without ever having to buy it with their own funds.

If you are a seller, here’s an example of the clause to look for in your listing contract:

RESTRICTION ON ASSIGNMENT OF CONTRACT: The Buyer and the Seller agree that this Contract: (a) must not be assigned without the written consent of the Seller; and (b) the Seller is entitled to any profit resulting from an assignment of the Contract by the Buyer or any subsequent assignee.

In addition, the Real Estate Services Regulation requires that a form called a “Notice to Seller Regarding Assignment Terms” be given to the seller at the same time a real estate licensee presents the seller with a proposed contract for the purchase and sale (i.e., an offer) for the seller’s property if the offer does not include one or both of the above terms. On that form, it advises:

Before accepting this offer, you should obtain independent professional advice regarding the absence of one or both of these terms. You should also consider whether you wish to make a counter-offer that includes the absent term(s) or other terms regarding assignments.

So, are contract assignments still legal? Yes. Real estate contracts are assignable under the law unless the contract expressly forbids it. Section 36 of the Law and Equity Act provides that the seller’s consent to the assignment is not required, provided that notice in writing of the assignment is given to the seller.

The new government requirements are designed to protect sellers of real estate, not sellers of real estate contracts. If a contract of purchase and sale expressly permits assignments and buyers wish to assign their interest to another buyer who then assigns it to another buyer, the first buyers are not protected by the requirement that notice of that assignment be given in writing to them.

What if a party to the contract strikes out the clause relating to the restriction on assignment? The sellers should ask their realtor to obtain from the buyer’s realtor a Notice Regarding Assignment of Terms that is signed by the buyer. The sellers need to know in writing if they are entitled to receive any profit resulting from an assignment. The sellers can then choose to allow the assignment and/or waive their entitlement to profits resulting from an assignment. As a safeguard to ensure compliance with the new requirements, the Council recommends realtors give copies of signed Notices Regarding Assignment of Terms to both the sellers and to their managing brokers.

It is also legal for buyers to close on a property sale and then quickly afterwards re-list (i.e., flip) the property or transfer their title for a higher price to someone else. If buyers have title to the property, they are now the new owners and are entitled to sell their newly acquired property. That is a sale of real estate, not a sale of a real estate contract, so the assignment restrictions do not apply in that case.

For more information about the assignment of real estate in BC, consult the Real Estate Council of British Columbia website http://www.recbc.ca/licensee/contract-assignment-faq.html If you have any questions about the above information, please do not hesitate to call me (Glen Kelleway) for help or explanation.


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Glen Kelleway, BSc, AMP, Senior Mortgage Planner & Owner

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