Canada: New Restrictions On Assignments Of Contracts Of Purchase And Sale

Last Updated: May 11 2016
Article by Edward L. Wilson

The Province has announced new regulations pursuant to the Real Estate Services Act ("RESA") that impose new duties on licensed B.C. real estate agents effective May 16, 2016, that will restrict the assignment of contracts of purchase and sale of real estate. The Regulations are intended to cool the overheated real estate market and reduce the number of contracts being assigned or flipped.

The Regulations require that real estate agents include a term in any contract of purchase and sale, unless otherwise instructed by their client, that provides that:

  1. the contract of purchase and sale may not be assigned without the written consent of the vendor; and
  2. that the vendor is entitled to any profit resulting from an assignment of the contract by the purchaser or any subsequent assignee (the "Assignment Restriction").

If a contract is presented that does not contain the Assignment Restriction, the purchaser's real estate agent must provide a written notice (the "Notice") advising the vendor that the contract does not contain the Assignment Restriction. The form of the Notice must be approved by the Real Estate Council of BC. The Real Estate Council of BC has prepared a form of Notice and it will be providing the Notice to real estate agents over the next few days.

If the vendor is represented by a real estate agent, the Notice is to be provided to the vendor's real estate agent by the purchaser's real estate agent. If the vendor is not represented by a real estate agent, the Notice is to be provided directly to the vendor by the purchaser's agent.

The Regulations do not distinguish as to the type of property impacted or the parties involved, with the exception that the Regulations do not apply to the sale of "development units" as defined in the Real Estate Development Marketing Act. As a result, the Assignment Restrictions do not have to be inserted in a contract for the sale of a new condominium unit nor does the Notice have to be provided to the developer by a purchaser's agent. This exception is based on the assumption that the developer can look after its own interest and insert a restriction in the developer's form of contract if the developer wishes.

However, the Regulations will apply to contracts for the purchase and sale of non-residential property. So if the Assignment Restriction is not in a contract for a commercial property, the purchaser's real estate agent must provide the Notice to the vendor's agent or to the vendor.

The Assignment Restriction provided for in the Regulations does not:

  1. prevent a purchaser (the "Original Purchaser") from entering into contract with the owner, transferring title to the Original Purchaser by filing a transfer in the Land Title Office and immediately transferring title to a new purchaser. In such a case however, property transfer tax will be paid twice, once on the transfer to the Original Purchaser and again with respect to the transfer to the new purchaser;
  2. restrict or prevent a change in control of the shareholders of a corporate purchaser; or
  3. define what a profit is or how or when that profit is to be paid to the vendor or how the vendor enforces such payment.

The Regulations do not:

  1. prevent the insertion of more detailed or complicated assignment provisions that restricts assignment generally but allows for assignments to affiliated entities or to specified parties. The Assignment Restriction can be amended in any manner the parties agree to, so for example to allow for assignment to a company controlled by an original purchaser;
  2. apply to contracts of purchase and sale made without the involvement of licensed real estate agents; or
  3. apply to contracts of purchase and sale made before the effective date of the Regulations.

The Regulations do apply to contracts of purchase and sale:

  1. used in land assemblies;
  2. used for non-residential properties (commercial, industrial, bare land, multi-family etc.); or
  3. accepted after the effective date of the Regulations.

With the adoption of the Regulations, the BC Real Estate Association/Canadian Bar Association standard form contracts of purchase and sale (for commercial and residential properties) will be amended to include the Assignment Restrictions. The parties to such contracts can choose to keep the new provisions, change them or strike them out completely but certainly a discussion regarding assignment will now likely take place during the negotiation of the contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Edward L. Wilson
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