Canadian Lawyer

20 A U G U S T 2 0 1 6 w w w . C A N A D I A N L a w y e r m a g . c o m ontroversial use of contract assignments in residential real estate deals in Van- couver, which prompted British Columbia to enact new restrictions, has law- yers and regulators in other provinces sitting up and taking notice. But the prac- tice of using assignment clauses to flip a property before closing is believed to be largely unique to the red hot Vancouver market. And if similar problems occur, in Canada's other sizzling market — Toronto — for instance, regulators say they're now on alert and know what to watch for. Vancouver's quickly escalating prop- erty values led some real estate repre- sentatives to flip properties, sometimes several times, in the period between the signing of the agreement to purchase and closing by assigning the sale to another seller at a higher price. This allowed the agents to double or triple their commis- sion and, if they were involved in the purchase, get a share of the difference between what the original seller received and what the final purchaser paid. Only the final sale needs to be registered with the land titles office. So the middle buyer or buyers who assign their obligation to purchase to someone else not only make a profit, they also don't have to pay the land transfer tax. The original seller, meanwhile, was often left in the dark about the subsequent sales and did not see any of the additional profit. "The appreciation week over week could be five or 10 per cent," says David Eby, B.C.'s NDP housing critic who prac- tised human rights law before going into politics. In some communities, the value of the property could climb dramatically, even within a 30-day closing period. That means that flippers could see a sizeable, tax-free profit even in that short window. "This is a symptom of the hyper-inflated, speculative real estate market that we have in Metro Vancouver right now, which is a really alarming situation," Eby says. Assignments have an important role in contracts, allowing a purchaser to sell or assign their contract if their circumstances change before the closing date. So if the purchaser has lost their job, for example, and can't fulfill their end of the agreement but can find someone else who can, they are able to assign their obligation to some- one else and get out of the contract. But Vancouver has experienced a distorted use of that clause, adds Eby. "It's being wrapped up with this bad thing with people deceiv- ing others about the value of their property and engaging in fraud in order to use this assignment process to get multiple com- missions for a list" and the value between the original sale and the assignment. R E A L E S TAT E JEANNIE PHAN B.C. restricts contract assignments Province takes unusual step to restrict house fl ipping in frothy market. C By Marg. Bruineman

• Cover