Assignment Transactions and the Duty to Act in Good Faith
With the rising interest rates, we expect a corresponding increase of investors looking to offload their pre-construction condos to third parties prior to closing. In so doing, these investors avoid paying land transer tax, registration costs, the builder’s various adjustments and any penalties associated with breaking a mortgage early.
As outlined in our previous publications, assignors need to be careful regarding HST implications and any assignment agreement entered into should be conditional upon lawyer review. Once conditions are waived, the assignor applies to the builder for assignment consent. In prior experience, we’ve seen wary assignors attempt to back out of assignment transactions because the builder’s consent is not satisfactory to the assignors. Courts are now taking a firm stance. In Chandran et al v Pannu, it was determined that assignors must take all reasonable steps to complete their transactions and that assignors owe assignees a duty of good faith in real estate transactions.
In August of 2020, Mr. Pannu entered into an APS to buy a pre-construction property from the builder. The APS stipulated that prior to the execution of an assignment, the assignor must obtain consent of the builder and pay a processing fee in the amount of $5,550.
In March of 2021, without obtaining consent from the builder or paying the assignment fee, Mr. Pannu signed an assignment of the APS to the applicants, Vikram Chandran and Chithra Vijayan.
The builder’s assignment fee subsequently increased from $5,550 to $35,000. Mr. Pannu was unwilling to pay the increased fee.
On November 29, Mr. Pannu amended the APS with the builder, substituting his realtor’s wife, Ms. Mandeep Gill, for himself as the purchaser. Mr. Pannu argued that it was within his rights to make the amendment because his interest had not yet been transferred to the applicants, as consent from the builder was never obtained. The court disagreed, concluding that “a vendor of property is under a duty to act in good faith and to take all reasonable steps to complete the sale.” Mr. Pannu had not taken any of the necessary steps to obtain consent from the builder, and thus, breach his duty to act in good faith.
Click here to read the case in full: 2022 ONSC 3278