Contract Reassignments

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A guide to contract reassignments

With the abundant building programme of brand-new homes and luxury developments in Canary Wharf, Docklands, East and South East London, prospective buyers often ask us about buying a property on contract reassignment. We engaged assistance from one of our partner firms, Taylor Rose, to explain the process and the negatives and positives of purchasing a property sold with contract reassignment. Ellie Karoubi from Taylor Rose provides a concise explanation below, and we hope you find this helpful.

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Introduction: A contract reassignment is the acquisition of contractual rights for a new-build property from a vendor. Unlike purchasing directly from the developer, this process involves engaging with a third-party vendor who transfers the benefits of their original contract to you.

Speedy Completion: Contract reassignments streamline the buying process, often outpacing traditional purchases. Cost-Saving Potential: There's an opportunity for a lower purchase price compared to current developer rates.

Negotiation Leverage: Motivated sellers may agree to reduce their deposit, providing an enticing chance for a discounted purchase. Vendors might choose contract reassignments to capitalise on property value appreciation or release their capital due to changed circumstances or motivation.

Grasping these motivations is key for buyers contemplating their approach to this avenue.

Uplift and Market Dynamics: The period between the original purchase and completion can witness an increase in the property's value, resulting in an uplift. Buyers might need to pay an additional amount to cover this appreciation. In a weaker market, vendors might sell the reassignment at a lower rate, especially under financial pressures.

Drawbacks of Contract Reassignment: When the assignor's legal team neglects thorough due diligence, obtaining additional information from the developer's solicitors will become challenging. If there are fundamental issues with the contract, lease, or transfer, the assignee will have little leverage to compel the developer to amend the documents. In essence, there is a lot of reliance on the assignor's solicitors in fulfilling their initial responsibilities. Should these obligations be overlooked, then the assignee's legal options are limited.

Legal Relationship: Purchasing a new-build property from a vendor establishes a legal relationship between the buyer and the developer.

Lending Criteria: Lenders may have specific criteria for reassignment contracts, which is why it is important to work with a mortgage broker familiar with this process.

Mortgage Offer Timing: The feasibility of obtaining a mortgage offer depends on the anticipated completion date. If the completion is expected to occur more than six months from the assignment, securing a mortgage offer may be more viable closer to the completion date. Conversely, if completion is anticipated within six months of the reassignment, it is advisable to secure a mortgage before executing the reassignment. This precautionary measure helps avoid exposure to the initial deposit and uplift without having additional funds available for completing the purchase.

Direct Engagement with Third Party: When purchasing from a third party, whether it's an individual or a company, your interaction will primarily be with this third party to transfer the contract rather than engaging directly with the developer. The third-party initially invested a capital sum when securing the contract off-plan, and upon the exchange of contracts, you, as the purchaser, cover this investment. However, after the assignment is completed, a direct relationship is established between the developer and the buyer, and the vendor's involvement diminishes. Reassignments prove effective by establishing a direct legal relationship between the developer and the buyer. Government Scheme Limitations: Government schemes, such as Help to Buy, must be authorised before the initial contract exchange, limiting their applicability to reassigned contracts.

Reassignment Limits: Reassignment limits vary among developers, with most allowing at least one reassignment based on individual circumstances.

Exchange Deadlines: Exchange deadlines for reassignments vary based on proximity to completion, with an average of 21-28 days, offering flexibility based on agreements.

Searches: Searches are mandatory for mortgage buyers and recommended for cash buyers to ensure comprehensive information and future resale considerations.

Stamp Duty Considerations: Stamp Duty is payable upon completion, with the amount depending on the buyer's category, including factors like First Time Buyer Relief, Additional Rate (3%) or whether they are replacing their main residence.

Conclusion: Contract reassignments offer a distinctive approach to property acquisition, presenting potential advantages for both buyers and sellers. Understanding the nuances of this process is essential for those considering this path.

Please get in touch with us with your contract reassignment property questions. 

Written by Alex Neil Estate Agents

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