The government of British Columbia has unveiled new rules
regulating real estate contract assignment aimed at limiting
As of May 16, 2016, new amendments to the Real Estate
Services Regulation will require that any purchase contract
prepared by a real estate licensee in British Columbia includes new
standard assignment clauses stating that the contract cannot be
assigned without the consent of the seller, and that the seller is
entitled to any profit resulting from an assignment.
The new amendments were passed amidst growing public concern
about shadow flipping, a practice which has gained significant
media attention over the past year. A shadow flip occurs when a
buyer, who has entered into a contract to purchase property,
assigns the contract to another buyer at a higher price before the
closing date. On closing, the seller receives only the price
contemplated in the original contract, without knowing that the
ultimate buyer has actually paid more for the property or that the
initial buyer has made a profit on the sale.
The assignment of one's rights in a real estate contract is
a legitimate practice permitted at common law and by section 36 of
the Law and Equity Act, unless it is expressly forbidden
by the contract. Having a right to assign also serves the important
practical purpose of providing flexibility to buyers who may no
longer be willing or able to complete a purchase as a result of
unforeseen circumstances, such as loss of employment, divorce or a
significant change in the buyer's business. However, in hot
real estate markets like Vancouver, assignment sales can create
active grey markets where purchase contracts for properties may be
assigned multiple times before closing. These assignments or shadow
flips not only allows the buyers in the middle, including investors
and speculators, to pocket the difference between what they paid
for the contract and the resale value, but also allows the
licensees involved to collect a fee for each assignment.
Although the regulations require that the new standard
assignment clauses be included by default in all proposed purchase
contracts prepared by licensees, the new rules do not ban contract
assignment outright. Buyers and sellers will still be able to
instruct their respective licensees to keep, modify or strike out
the new standard assignment clauses before the contract is
presented to the other side. However, if one or both of the new
standard assignment clauses are removed, the licensee acting for
the buyer will be required to notify the seller using a prescribed
form. The licensee acting for the seller will also be required to
notify the seller if the proposed contract is missing the new
standard assignment clauses and must inform the seller whether the
proposed contract is assignable or not. If the proposed contract is
assignable, the licensee acting for the seller must also disclose
any conditions to assignment and the seller's entitlement,
under the proposed contract, to any profit resulting from an
The new regulations will apply to licensees in both residential
and commercial transactions, with the exception of development
units as defined by the Real Estate Development Marketing
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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