New rules for contract assignments aimed at ending the practice of shadow flipping took effect today, but the commercial real estate industry says it’s going to have some unintended consequences.
Mark Goodman with Vancouver’s HQ Commercial says while contract assignments might be rare in the residential world, at least 90% of his clients assign the contract to a holding company, bare trust or other corporate entity for tax purposes.
“I think it’s a politically sensitive topic and it affects us in the commercial world greatly. It’s just another layer of paperwork and discussions that we have to have with clients on this topic.”
Now contracts must include a clause stating it can’t be re-assigned without the seller’s consent and any profit must go back to the original seller.
Goodman calls it a knee-jerk reaction to an isolated problem involving a few unscrupulous realtors.
“So what’s happening is they are taking a small group of realtors that are assigning contracts for a profit and they are taking that issue and they are projecting it on the entire real estate industry and I think it is going to hurt us.”
Denton’s Commercial Real Estate lawyer Arnon Dachner says commercial clients are usually represented by lawyers.
“And so a strict one size fits all regulation may not be appropriate for a commercial context.”
New rules mean realtors who draft offers to buy property must include two separate terms about contract assignment in an offer.
One requires the seller’s consent to transfer the contract.
The other requires any resulting profit to be returned to the original seller.