Confused about Contract Assignments? We’ve got everything you need to know

At JOHNS&CO we have been one of the most active players in contract assignments since we first opened our doors in 2013 – a key strength being our ability to call upon our 100+ staff and their significant experience in both the New Homes/Off-Plan & traditional High Street agency markets. As leading experts in this field, successfully completing over 1000 assignments, we have the benefit of unrivalled expertise & knowhow, where our less experienced counterparts might naively consider these to be another “off-plan” sale – a common & potentially costly underestimation.

So what are contract assignments?

Contract assignment sales (sometimes referred to simply as reassignments) occur in off-plan developments where the original buyer (the assignor) exercises their right to sell the contract to a new buyer (the assignee). The negotiations relating to this sale, agreeable price & conditions, take place between the assignor and the assignee, not with the developer. Typically, but not always, assignment sales occur at a time when the developer has sold out a building and there remains strong demand for buyers to purchase pre-completion, which allows the option for them to buy when they might not otherwise have been able to. In its simplest terms, Client A has agreed to buy an apartment from a developer and has a contract committing to the purchase. Client B can buy that contract (by way of a deed of assignment) from Client A.

What makes this different from buying from the developer directly?

When buying a contract assignment from an individual, you’re purchasing the “benefit” of their original contract, which exists between them and the developer. On this basis, the original buyer (assignor) will have paid a deposit to the developer (typically 15-30% of the agreed sales price but this can vary) which the new buyer (assignee), agrees to “purchase” from the assignor – which in effect is the transaction. Upon the execution of the deed of assignment, effectively completing the process, the assignee is now the de facto purchaser and will go on to legally complete on the original contract with the developer at a later date, where the remaining balance (70-85%) is settled with them directly. Assignments can often be more complex than traditional property sales. Therefore, it’s crucial that you have a knowledgeable team on your side from your mortgage broker to solicitor, that can ensure a smooth and pain free transaction. Our proven track record in contract assignment sales means that we are able to overcome issues before they take place and give insightful advice throughout the process. Joseph Bate, Canary Wharf Sales Manager has been dealing in contract assignments for almost a decade. He comments that ‘Contract reassignments are a niche area of the property market but can be a very valuable tool. Whether you are looking to buy or sell a reassignment it is essential you use experts in the field that can help guide you through the process’.

Mortgage implications

A frequently underestimated point to note is that the lending market for assignment buyers is smaller than the traditional sales arena. It is worth pressing this point with your mortgage broker or lender in the very early stages of the buying-journey to ensure you don’t waste time, effort & unnecessary cost. We recognised many years ago that providing our clients with trustworthy experts in the financial market was essential, therefore teamed up with Capricorn Financial to support our clients effectively. Luke Northcott, Senior Advisor at Capricorn Financial comments that “Reassignments are absolutely feasible to get lending on. A few requirements need to be met – namely 20% or more in deposit as an absolute minimal requirement. There’s a small sector of the mortgage market that will lend, so it is always best to speak to one of the team, as we have the experience required to source these funding options. We’ve worked with JOHNS&CO since 2014, and have helped place hundreds of re-assignments, so you can be in no safer hands.

Legal implications

Chris Myers, a Partner at Mayfair law firm Forsters LLP, comments that “Contract assignments are a very popular mechanism for clients to realise profit ahead of a contractual completion date. Equally, they are a useful tool where personal circumstances have changed during the construction period or buyers want to enter a scheme outside of the developer's marketing programme. It is imperative though to make sure that you surround yourself with experts who understand this market. This means agents and mortgage experts with experience of the nuances of this market and lawyers who not only appreciate the particular requirements of the paperwork but also the commercial terms and what is required to effect a successful assignment expeditiously. The original purchaser remains "on the hook" until completion of the transaction and so protecting the parties throughout that process is essential; an experienced legal team will be able to put the necessary requirements in place to achieve this”.

How many re-assignments are allowed?

In most cases only one assignment is permitted. However, this does depend on what is specified in the contract itself, the developer in question and timescales until completion.

Can I use Help To Buy? What about Stamp Duty?

Unfortunately Help To Buy is not applicable on contract assignments as this can only be offered by the developer directly. Due to the current SDLT holiday on properties up to £500,000 (valid until 31^st March 2021), the stamp duty threshold has been increased to £500,000. If this is your first purchase you would pay the lower stamp duty rate, however if you own another property anywhere in the world then you can expect to pay the additional 3% surcharge.

How long will it take to exchange?

This varies hugely, as it does with your more traditional transactions. Generally speaking, assignments are quicker than traditional transactions, usually only taking between 4 – 6 weeks. However, it is worth noting that assignment transactions can be concluded in a matter of days. Timescales do depend heavily on both parties being as proactive as possible and having a capable agency at the helm. JOHNS&CO have dedicated Sales Coordinators to assist at every stage.

What are ‘uplifts?’

You might have heard the term ‘uplift’ used when discussing assignments. In the simplest terms, this is the premium added (the profit) which the original buyer is seeking to sell their contract. Developments take a significant amount of time to build, typically 2-4 years, from the time it’s released (when the original buyers agree their purchases and contracts) to collecting the keys on legal completion. This construction period is key, as the world & property market doesn’t stand still. London has a reputation for prices to “double every 10 years”, though likely more modestly in recent decades, so it stands to reason that a price agreed originally may go up during the 2-4 years take to build. As an example, a 1-bedroom apartment bought originally for £500,000 might carry a “market value” of £550,000 if the local market rises by 10% during the construction timeframe. In this instance the new buyer (assignee) could buy at this price by paying the £50,000 “uplift”, on top of the deposit settlement (% amounts vary as noted previously). See workings below - Example – Original price £500,000 with 20% deposit paid. New buyer agreeing to buy at £550,000. Original deposit = £100,000 Uplift (premium) = £50,000 Therefore £150,000 would be required from the new buyer (assignee) to purchase the contract (complete the assignment). Leaving £400,000 (80% of original price) due to the developer on legal completion. It should be noted that whilst the contract assignment market is particularly prevalent in strong market conditions, there can be situational circumstances where the original buyers (assignor) may wish to sell their contract at a reduced rate. Again, citing the 2-4 year construction window, there can be changes to people’s personal circumstances where completing on purchasing the property is not possible. These happen in very rare examples and all commitments & obligations contained within the contract between the developer and the original buyer remain in place. Our advice would be that if you are in a position where you are contractually required to complete a purchase buy no longer have the means to do so, speak to the developer or JOHNS&CO to review the options available to you. We hope that has answered some of the frequently asked questions relating to contract assignments. If you have any questions not covered above, do feel free to contact us using the details here.