The government of British Columbia has unveiled new rules regulating real estate contract assignment aimed at limiting "shadow flipping".

As of May 16, 2016, new amendments to the Real Estate Services Regulation will require that any purchase contract prepared by a real estate licensee in British Columbia includes new standard assignment clauses stating that the contract cannot be assigned without the consent of the seller, and that the seller is entitled to any profit resulting from an assignment.

The new amendments were passed amidst growing public concern about shadow flipping, a practice which has gained significant media attention over the past year. A shadow flip occurs when a buyer, who has entered into a contract to purchase property, assigns the contract to another buyer at a higher price before the closing date. On closing, the seller receives only the price contemplated in the original contract, without knowing that the ultimate buyer has actually paid more for the property or that the initial buyer has made a profit on the sale.

The assignment of one's rights in a real estate contract is a legitimate practice permitted at common law and by section 36 of the Law and Equity Act, unless it is expressly forbidden by the contract. Having a right to assign also serves the important practical purpose of providing flexibility to buyers who may no longer be willing or able to complete a purchase as a result of unforeseen circumstances, such as loss of employment, divorce or a significant change in the buyer's business. However, in hot real estate markets like Vancouver, assignment sales can create active grey markets where purchase contracts for properties may be assigned multiple times before closing. These assignments or shadow flips not only allows the buyers in the middle, including investors and speculators, to pocket the difference between what they paid for the contract and the resale value, but also allows the licensees involved to collect a fee for each assignment.

Although the regulations require that the new standard assignment clauses be included by default in all proposed purchase contracts prepared by licensees, the new rules do not ban contract assignment outright. Buyers and sellers will still be able to instruct their respective licensees to keep, modify or strike out the new standard assignment clauses before the contract is presented to the other side. However, if one or both of the new standard assignment clauses are removed, the licensee acting for the buyer will be required to notify the seller using a prescribed form. The licensee acting for the seller will also be required to notify the seller if the proposed contract is missing the new standard assignment clauses and must inform the seller whether the proposed contract is assignable or not. If the proposed contract is assignable, the licensee acting for the seller must also disclose any conditions to assignment and the seller's entitlement, under the proposed contract, to any profit resulting from an assignment.

The new regulations will apply to licensees in both residential and commercial transactions, with the exception of development units as defined by the Real Estate Development Marketing Act.

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