Over the past few months I have seen several instances where a Purchaser enters into an Agreement of Purchase and Sale (the “Agreement”) and prior to closing seeks to assign the Agreement to a Third Party Assignee. Notwithstanding that the property was not purchased in trust, nor was there a specific provision included as a schedule to the Agreement allowing the Purchaser the contractual right to assign the Agreement, the Purchaser and Third Party Assignee, on the advice of their respective lawyers, proceeded to draft and execute an assignment agreement, without the consent of the Seller, which to their minds constituted a valid assignment.
What in effect was created between the Purchaser and the Third Party Assignee was a valid agreement between the two parties whereby the benefit, pursuant to section 53 of the Conveyancing and Law of Property Act, R.S.O. 1990, of the Agreement was assigned to the Third Party Assignee. However, as a result of the doctrine of privity, which in part dictates that the liabilities cannot be assigned absent the consent of the Seller or a clause in the Agreement permitting the assignment, the original Purchaser remains liable to the Seller for any default that may arise under the Agreement. Moreover, in the event the Third Party Purchaser is not able to complete transaction on the Closing Date, as defined in the Agreement, the Seller’s only recourse is against the original Purchaser as evidenced by the contract relationship between the Seller and the original Purchaser, as there is no direct contractual relationship between the Seller and the Third Party Assignee.
In support of this position Ontario courts have held that “a person who signs an agreement of purchase and sale can only avoid personal liability therefore, if, in the agreement, there are express and unequivocal words of qualification to this end.” The court added that caution must be taken when adding such language to an Agreement because having added “without personal liability”, which will serve to exempt the Purchaser of liability, has the corresponding effect of denying the Purchaser any benefit under the Agreement and the opportunity to sue. Accordingly, where a Purchaser intends to assign an Agreement, the parties should consider adding the below clause to protect the Purchaser from liability under the Agreement, keeping in mind that in exercising their right to assign the Agreement they are similarly contractually eliminating their right to claim any benefit under the Agreement:
The Seller acknowledges and agrees that the Purchaser shall have the absolute right and is permitted, prior to the closing of this transaction, to assign this Agreement and all the benefits contained herein or the rights under this Agreement with respect to the Property, to any person and upon such assignment, all of the respective obligations and liabilities of the Purchaser will cease and the Seller will deal with the Assignee as if it had been the original party to this agreement and the Purchaser thereafter shall have no personal liability hereunder.
The parties are however strongly advised to consult their respective lawyer prior to executing the Agreement as each transaction is unique and where an assignment clause is to be added, the clause should reflect the exact nature of the transaction contemplated therein.
ABOUT THE AUTHOR: Jeremy Mandell is an associate with the law firm Garfinkle, Biderman LLP, a full service firm of 19 lawyers located downtown Toronto. Jeremy’s areas of practice include all areas of commercial and residential real estate as well as aspects of corporate law. He can be reached at (416) 869-1234 or by e-mail at firstname.lastname@example.org.