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[BUYING AND SELLING REAL ESTATE IN CANADA - ONTARIO]
In a heated real estate market, a buyer may submit an unconditional offer to the seller to gain an advantage over other prospective buyers. However, the buyer should be aware of the risks, including potential damages if the buyer cannot complete the transaction on closing, of such an offer as the offer becomes a binding contract if accepted by the seller. Commercial A buyer of a commercial property will conduct searches regarding the physical integrity of the building and soil, legal searches relating to title, executions, zoning and work orders, property tax and utility arrears, reviews of surveys (if available), similar to residential transactions. The buyer will evaluate the pertinent due diligence materials provided by the seller as aforementioned. The commercial buyer should assess all leases and related tenant files, and do off-title searches which may comprise of assessing zoning and work orders, development and cost sharing agreements, Phase 1 and 2 environmental reports, and fire and health department documents, etc. In other words, a buyer has the additional responsibility of ensuring the commercial feasibility of the property. For a leased property, a tenant acknowledgment, also known as an estoppel certificate, is routinely obtained from the commercial tenants prior to closing. These are not usually obtained for an apartment building as the rental income in usually less significant and parties do not want to disturb the residential tenants. The tenant acknowledgement confirms the material facts about the lease, including, but not limited to, any outstanding landlord work, arrears of rent, rent amounts (including additional rent), square footage, the
existence of any amendments to the lease, the lease term, expiry date, renewal rights, escalations in rent, deposits, prepaid amounts and that there are no disputes or rights of set off, or if there are, details of such claims. The tenant acknowledgement is important as it confirms the lease information but may limit the potential for disputes post-closing with the buyer as the tenant will be estopped from later asserting a different interpretation of the lease terms. It is important for the buyer and seller to assess and determine what the consequence will be if the seller is unable to provide the estoppel certificates, or if the certificates materially differ from the leases and disclosures made by the seller. Examples may include termination of the transaction without either party being liable for damages, an abatement of the purchase price or a temporary hold-back. Since commercial properties come in a variety of forms, it is prudent to hire professionals such as engineers, planners, appraisers and surveyors to assist in the transaction who have expertise in the type of property being sold or purchased, and to determine if the intended future use of the property is allowed. In some instances, the professional may have to contact various third parties, such as utility providers, conservation authority, fire department, building department, and municipal zoning departments to determine if encumbrances that are not registered on title exist or if historical environmental violations exist. The carriage of business on the property warrants a higher level of scrutiny for commercial real estate transactions than for residential transaction.
ILN Real Estate Group – Buying and Selling Real Estate Series
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