Assignment to a new party of the purchase agreement rights of a buyer is common in both residential and commercial real estate contracts. As previously noted in broker corner articles, the LLC form of ownership offers a number of advantages to owners of investment properties, including limiting the liability of the members.
The majority of assignments are to LLCs to hold specific property for the express purpose of limiting liability. The specific LLC has usually not been created at the time of the purchase, so assignment is the easiest way to transfer the contract to the new legal entity. This is true for both small investors and large investors in both residential and commercial purchase agreements.
Watch out. Assignments to newly formed LLCs can be for a legitimate purpose and perfectly legal. On the other hand, they can be a part of a money laundering scheme. It is very important for the closing attorney to review assignment and LLC documents closely to confirm the assignee’s status.
GAR Residential and Lot Purchase and Sale Agreement
The GAR residential Purchase and Sale Agreement, page 6, paragraph 4e. of the PSA provides
“This Agreement may not be assigned by Buyer except with the written approval of Seller which may be withheld for any reason or no reason. Any assignee shall fulfill all the terms and conditions of this Agreement.”
That is, under the GAR agreement, the seller can just say no. The denial of assignment does not have to be reasonable or based on anything other than the seller’s whim. If the buyer of property wants the ability to assign, a special stipulation that controls over the printed language of the GAR purchase agreement would need to be added. The GAR Lot Purchase Agreement has the same language.
Of course, even without a right to assign the contract, the buyer can still close and immediately sell the property to another purchaser. The right to assign the contract merely avoids a second closing.
If the assignment is permitted by the seller, GAR F279 Assignment of Purchase and Sale Agreement Rights, can be used for an assignment from the original buyer, the assignor, to the new buyer, the assignee. The contract’s terms and conditions will be binding upon the assignee. The original buyer also remains liable for the performance of the terms of the purchase agreement, unless the contract expressly releases the assignor is from liability, This is the case even if the other party has consented to the assignment and deals exclusively with the assignee.
GAR Commercial Purchase and Sale Agreement
The GAR Commercial Purchase and Sale Agreement is different. In it, the printed language offers an alternative: The Buyer may or may not assign the Agreement.
11. Assignment. Buyer may OR may not assign this Agreement in accordance with the terms of this Agreement.
If the box is checked that allows an assignment, the seller does not have to consent. If the box is checked that does not allow an assignment, a standard of reasonableness in read into the denial. In Georgia there is an implied duty of good faith and fair dealing in determining reasonableness in a contract, so long as there is not a provision that provides the seller does not have to be reasonable. Reasonableness is generally centered on the ability of an assignee to financially perform the terms of the contract.
GAR LAND PURCHASE AND SALE AGREEMENT
The printed language in the Land Purchase Agreement is similar to the Commercial GAR agreement, but adds a requirement that the assignor have a 25% interest in the assignee.
Assignment. Buyer shall OR shall not have the right to assign this Agreement; OR shall have the right to Assign this Agreement only to a legal entity in which Buyer owns at least a 25% interest.
Non-GAR Purchase Agreement
A non-GAR purchase contract may provide that a contract can be assigned only upon consent of the other party, which consent may not be unreasonably withheld. In such a case, the term “unreasonably” means that the party cannot act in an arbitrary or capricious manner or base consent merely upon personal preferences.
Not Every Property is Assignable.
Not every property is assignable. Some real estate properties will have anti-assignment clauses, such as HUD homes (which are properties built by the US Department of Housing and Urban Development) and REOs, which are properties owned by lenders. This prevents wholesalers from trading these types of properties through assignment contracts.
Assignment of Leases
The Georgia courts have created a limited exception to this rule in the case of leases. In lease contracts, the courts have declined to read in a requirement of good faith or fair dealing, and have not forced property owners to be reasonable in permitting assignments absent contractual language calling for reasonableness.
Of course, even without a right to assign the contract, the buyer can still close and immediately sell the property to another purchaser. The right to assign the contract merely avoids a second closing.
Assignment of Leases
The Georgia courts have created a limited exception to a standard of reasonableness in the case of leases. In lease contracts, the courts have declined to read in a requirement of good faith or fair dealing, and have not forced property owners to be reasonable in permitting assignments absent contractual language calling for reasonableness.
As always, please contact a member of the Broker Team if you have questions!
Weissman, Seth. The Red Book on Real Estate Contracts in Georgia BookBaby. Kindle Edition.
