How are real estate contract assignments handled in Alberta?

Contract assignments have likely been around since the first contract was created. It stands to reason that if I make a contract with you to buy 100 watermelons from your watermelon farm for $200, but I decide I don’t like watermelon (which I don’t), I should be able to find someone who will take over my obligation to you to fulfill the watermelon contract, and even perhaps pay me more for the contract than it cost me. Now, you sell your watermelons, I make a little money, and the new buyer loves watermelons. Win-win-win right? With watermelons, maybe, but real estate is a little more complicated. Let’s take a few minutes to consider some of the high points in real estate contract assignments. 

Clarifying Context 

I regularly field questions from members about working with buyers to help them find another buyer to assign their contract to. Many want to know if it is legal, some want to know the “right way” to help a buyer assign a real estate contract, and some just want to argue about the concept, which I am always up for if you are bored. So, let me get some key questions answered right out of the gate so we can all start on level ground.  

• Yes, contract assignment is legal in Alberta.
• Yes, I know other provinces have forms for it; no, we don’t in Alberta.

• Yes, I know out-of-province buyers do it all the time in their province and don’t understand the issue – which is why I am writing this article.

There is a bit of a fork in the road at this point. There is a version of the assignment of contract conversation that intends to help speculative purchasers who, for various reasons, have contracted to purchase property at a discounted rate and want to “market” their interest in the property to find potential buyers to assign to. This practice comes with some unique pitfalls and liabilities that I am not addressing in this article. The advice I intend here is for situations, for example, where the purchaser is in danger of not being able to close on the property for medical, financial, or other such reasons and is seeking help from a REALTOR® to find a buyer to assume their obligations in the contract and avoid loss of deposit funds. These assignments are often very transparent, with full disclosure of the first contract being assigned. One road is not necessarily more legitimate than the other, but there is a distinction between the liability and the level of disclosure the assignor will likely provide to the assignee about the first contract.  

The Law 

As I mentioned, contract assignments are legal for the parties involved. This is found in section 154 of the Land Titles Act, which states:  

Any contract in writing for the sale and purchase of any land, mortgage or encumbrance is assignable notwithstanding anything to the contrary contained in it, and any assignment of any such contract operates according to its terms to transfer to the assignee mentioned in it all the right, title and interest of the assignor both at law and in equity, subject to the conditions and stipulations contained in the assignment.  

All real estate legislation is provincial, not national, so what other provinces do or do not allow makes no difference. In Alberta, the Real Estate Act defines “Real Estate” as Real Property or leasehold property, plus a specific carve-out for manufactured homes under certain circumstances. Although I’m not a lawyer, the plain reading of the definition without any textual gymnastics intends to include the “real” property ownership rights and specific rights afforded to leaseholds as supported by common law. Assignments are also a package of rights created by common law where a purchaser transfers their right to future ownership to another party. The Act goes on to define that a ‘sale’ “in respect of real estate, includes an exchange, an option, a lease, or any other disposition of an interest in real estate.” This clearly includes an assignment of an existing purchase contract. So, the assignment of a real estate purchase contract is a legally valid and enforceable agreement, and registration in the name of the assignee is mandated by the Land Titles Act.  

Legal vs. Logistics 

So, the question is not whether real estate purchase contracts can be assigned since the law is clear they can. When the assignment is to facilitate closing, such as when the buyer cannot close due to a job transfer or illness, full disclosure is normative, and no property marketing is required, so a lawyer can assist with a simple assignment agreement. In such cases, the brokerage may even secure a fee for introducing the assignor and assignee. Still, the real question then becomes whether a REALTOR® can get involved to help actively market the purchaser’s interest in the contract by representing the assignor. Since the definition of “sale” in the Real Estate Act does appear to allow the provision of representation services to a buyer looking to assign a contract to another buyer, the next question is about the logistics of that process. The first thing is to get permission from the broker to ensure the brokerage does not have office policies prohibiting this type of representation. Second, if the broker allows the representation, the agency disclosure, written service agreement, and FINTRAC requirements must be completed. However, the AREA Exclusive seller representation agreement, and even RECA’s version of the same, was designed for the sale of the real property, not the contractual interest in the property, so either the standard agreements will need to be altered under the supervision of legal counsel, or a custom representation agreement for this purpose should be sought from legal counsel. Similarly, the AREA standard purchase contract will also require some modifications suitable to the scenario of assigning a contract from one buyer to another. Legal counsel should also write assignment of contract documents to ensure enforceability in such cases. As an additional consideration, the liability is significantly reduced in assignment sales when there is full disclosure of the original contract as part of the assignment agreement.  

Custom Marketing  

Next up is how to advertise and market the sale. In Alberta, the Provincial Harmonized Rules require that all MLS® system listings must be contracted on the approved MLS® listing contract, which, as mentioned above, is not possible, so assignments cannot be marketed on the MLS® system for at least this reason. In addition, other issues also exist that would prohibit the marketing of assignments from being in alignment with board rules. For example, because the buyer is selling their interest in the purchase contract, they do not have the authority to permit access to the property within 24 hours of a request to be shown by a fellow member, as the rules require. Additionally, using property photos without access to the property to take them poses a problem, and using existing photos may be an intellectual property violation. Finally, access to the property to fulfill the RMS requirements is also generally not possible. For these and other potential obstacles, assignment sales do not qualify for access to the MLS® system, requiring other custom marketing methods to find potential buyers to assign the contract to.      

Hurdles to assignment 

Despite assignments of contract being legal, the assignment can, and often do, have some hurdles baked into the original contract that the parties signed, although they can never prohibit assignment altogether. Although this is less common in resale properties, it is very common in new construction properties that use a builder contract. These restrictions range from time restrictions, to builder right of first refusal, to builder approval with a hefty assignment fee, or other variations and since there is no standard builder contract, the contract should be read every time before engaging the client who wants to attempt an assignment just in case there are such criteria that need to be considered. It is conceivable, if not common, that the buyer also didn’t read the contract before signing it, especially if they are from another province and do not realize there may be terms relating to assignment in the contract. The seller cannot prohibit the assignment outright, but the plurality of creative variations that can exist in builder contracts go beyond the scope of this article. Suffice it to say…beware.   

Super Important Note from REIX 

At the time of this article, the Real Estate Insurance Exchange (REIX) has indicated that they do not insure assignments. So, if a claim is brought against a Licensee and/or their brokerage relating to an assignment they represent, no coverage may be extended. This may require the licensee and brokerage to furnish their own defense, at their own cost, if they have no alternate errors and omissions coverage for such situations.   

In summary, a consumer's freedom to assign their rights in a purchase contract is enshrined in law but may come with potential terms in the original contract, which may make the assignment a less attractive option. However, representing a consumer in the marketing and potential assignment of the contract is markedly more complicated for REALTORS® and their brokerages and should not be attempted without advance discussion with the broker and legal counsel. But if you want to buy watermelons, maybe we can figure something out.