Reassignments - what actually are they?
In the past few years there has been a notable increase in demand from buyers wanting to purchase contract reassignments. We know that processes of purchasing a contract reassignment may not be familiar to everyone and can initially seem difficult to understand. This is why our Tower Bridge Sales Manager Nigel O’Connell sat down with our good friends at the Leadenhall Law Group to get to the bottom of how a reassignment purchase actually works. A big thank you to Edward from Leadenhall Law Group for providing such an in-depth explanation.
1) What does the term contract reassignment actually mean?
The term reassignment means that you are effectively buying a new build property from a vendor rather than the developer directly, the vendor is simply re-assigning the benefit only (not the burden) of the exchanged contract to you as the end purchaser. The vendor will be represented by a solicitor alongside the developer having their own solicitor.
2) How does buying from a third party differ from buying directly from a developer?
When you are buying from a third party whether it be an individual or company, you will be dealing with that third party to re-assign the contract rather than the developer. The third party would have invested a capital sum when they bought the contract off plan, which will be covered by you as the purchaser upon exchange of contracts.
However, once the assignment has taken place there will be a direct relationship between the developer and the buyer and the vendor will then fall away.
Reassignments are effective as they create a direct legal relationship between the developer and the buyer as if the buyer had just brought from the developer in the first place. This is more effective and a simpler process than doing sub contracts and flipping the property.
3) Is the developer involved in my purchase of the reassigned contract?
The developer will be involved in the reassignment, they provide the majority of the documentation to the vendor’s solicitors alongside providing any responses on the development itself. They will provide the draft paperwork to the vendor in the first instance. The developer’s solicitors will complete the property with you once you have exchanged the reassignment of the contract with the initial vendor. After the assignment takes place there will be a direct relationship between the developer and the buyer.
4) Are there any lending restrictions with this type of purchase?
Lenders do have restrictions and criteria to meet. Some specific lenders are more suited to reassignment contracts, so it is important you work with a mortgage broker who knows the reassignment process to achieve the best mortgage possible.
Please contact us and we can refer you to our financial services partner for further advice.
5) When do I need to secure a Mortgage Offer? Is this required before or after execution of the reassignment?
It will depend on when the anticipated completion date is, as if it is more than 6 months away from the assignment then a mortgage offer may not be viable until closer to the completion date.
If completion were anticipated for less than six months from the date of the reassignment, we would recommend having a mortgage before execution of the reassignment, as you could otherwise find yourself exposed for the initial deposit and uplift, without any further funds to complete on the purchase.
6) Once exchanged, will I have design input with the developer on how my property is finished?
It will depend on the developer scheme and what phase the development is in when reassignment takes place. The finishings of the property are generally something that can be negotiated with you and the developer directly alongside having your agent assist throughout.
Edward from LLG answers your reassignment woes
7) Can I utilise government schemes such as Help to Buy when buying an assigned contract?
Unfortunately not, as the help to buy scheme must be authorised before the initial exchange of contracts between the developer and vendor.
8) Is there a limit to how many times a contract can be reassigned before completion?
Most developers will allow for at least one re-assignment of the contract, it depends on each developer and the timeline until completion of the unit.
9) Do I have to exchange in 28 days as I would if I was purchasing direct through a developer?
The deadline to exchange on the reassignment can vary dependent upon how close to completion. The average for reassignment is between 21-28 days, however we have completed matters in 2-3 days!
Timescales are always dependent on the agreement between parties and agents.
10) What documents are provided in the Contract bundle from the start of the transaction?
1. Draft Lease
2. Original contact between the vendor and developer
3. Full development pack
4. Draft Deed of Assignment
11) Do I need to instruct my solicitor to obtain searches?
Searches are mandatory should you be obtaining a mortgage due to your lender requiring these to lend the monies against the property. If you are a cash buyer, it becomes optional as you do not have to fulfil this obligation. We would always recommend obtaining searches to give you the full information alongside protecting your position when it comes to selling the property - whilst you may be a cash buyer, when you come to selling, your purchaser may not be.
12) What is the ‘uplift’ and when do I have to pay it?
The uplift is the amount you pay over and above the original purchase price. On exchange you will be responsible for paying the deposit paid by the initial purchaser alongside the presumed uplift, which is the differential between the original purchase price and what you are purchasing the property for.
On the occasion that you are buying the property for a lower value than what the original purchaser bought the property for, the previous buyer (vendor) would be responsible to make up this differential. In this instance you would simply send the deposit whilst allowing for the original purchaser to make up the difference in price paid. The purchase price on completion would still be registered at the original purchase price rather than any decrease in value, hence why the previous purchaser covers the loss on the property.
13) Is stamp duty payable? If so when is this payable and how much is owed?
Yes, stamp duty is payable. You owe stamp duty upon completion of the matter and what you owe is dependent upon what category you fall under from the below:
a. First Time Buyer Relief – Under £300,000, you will pay no stamp duty and under £500,000 you will pay a reduced rate. The relief is eligible for those buyers who have never owned a property previously.
b. Sole Property Rate/Replacing Main Residence – you would pay the lower rate of stamp duty on the basis you own one property, or you are replacing your main residence. In the instance if you own any other properties but you are replacing your main residence, you would still pay the lower rate of the stamp duty.
c. Additional rate (3% extra) of the stamp duty – on the basis that this property will be an additional property to your main residence or is for investment purposes due to you not living at the property in question.
We hope this has answered most of your questions on reassignments. However, if you have any more, please get in touch with our sales expert, Nigel, on Nigel.OConnell@liferesidential.co.uk, and he will be happy to help.