Purchasing a Business Space in Canada

Raymond H. Mikkola for The Lawyers Weekly

At some point in the lifetime of a Canadian business enterprise, the operators of the business will consider whether to continue leasing a property or to purchase the premises from which the business operates or will operate.

Business space purchases in Canada involve either one or more units in a registered condominium or a non-condominium form of freehold property. Many ownership considerations apply to both (property taxes are payable on both forms of ownership, for example, and both may be resold and mortgaged). However, a condominium has a number of practical differences from non-condominium ownership. For example, in a condominium, owners must pay monthly common expenses to operate the property in which the space is located, as set by an elected Board. But the Condominium Board and a hired property manager look after many of the time consuming aspects of property ownership. The corporation arranges for fire insurance on the common areas and the units, maintains the common elements, and arranges for the contribution of monies from common expenses to be paid into a reserve fund account to ensure that when the property requires major capital repairs and replacement (replacement of windows, roof, etc.) the money will be available. A unit owner in a condominium can focus more on operating the Canadian business than on the business premises.

In any event, it will be necessary to retain a real-estate lawyer at a very early stage in the purchase process. Most importantly, it will be necessary in a commercial purchase transaction to arrange for the real-estate lawyer to draft or carefully review the form of purchase agreement. This contract will contain provisions which set out all of the important legal matters associated with the purchase of the Canadian business premises. Because your particular agreement with a vendor will contain provisions which are unique, to some degree, to your transaction, the commercial agreement of purchase and sale is rarely an "off the shelf" document, as are most residential purchase agreements. If you first attend at your real-estate lawyer's office with a fully signed and binding agreement of purchase and sale, you will be have missed an important opportunity to obtain the benefit of that lawyer's advice, both in terms of Canadian business and legal matters.

The commercial agreement of purchase and sale in Canada will differ substantially from a residential form of agreement in several important ways. For example, it is typical that a commercial agreement of purchase and sale will contain a number of so called "due diligence" provisions. Basically, these are provisions which permit the purchaser to conduct a review of the property, and all matters associated with the use of the property and its ownership, prior to "going firm". These due diligence periods typically are between 45 and 90 days in length. In addition, where a matter is discovered during the due diligence period of which the seller was not aware, it is not unusual in Canada for the waiver of the due diligence condition to be accompanied by a reduction of the purchase price (or some other benefit) which the purchaser may be able to negotiate.

Another common and important provision in a commercial agreement of purchase and sale is a municipal zoning review provision. Zoning in Canada is a particularly important matter in a commercial transaction, as the particular business use which the purchaser proposes to make of the business premises must be permitted by the relevant zoning by-law. A zoning by-law review in Canada will often involve a detailed review of the zoning provisions at the municipality. These by-law reviews can include confirmation that the business use is permitted, that the requisite number of parking spaces are available to accommodate the business use, and that outdoor storage of inventory and equipment is permitted among other important matters.

In the course of all of these discussions, it must be remembered that the typical Canadian business purchaser will rely on its bank to provide most of the monies which will be required in order to complete the purchase. It is important to be aware that banks have their own requirements, including the delivery of satisfactory appraisals, collateral security on your principal residence, if required, guarantees, and the provision of independent legal advice to spouses to name a few. For this reason, it is common in Canada to include a financing condition in favour of the purchaser to allow the purchaser to secure a binding commitment from its lender before "going firm".

These are only a few of the considerations involved in the commercial purchase transaction. In any event, the decision to purchase the business premises is a seminal event in the lifetime of a business enterprise.

Raymond H. Mikkola is a lawyer with the Law Offices of Raymond H. Mikkola in Mississauga, Ontario.

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