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[BUYING AND SELLING REAL ESTATE IN CANADA - ONTARIO]
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 is 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. IV. HOLDING TITLE There are several ways in which title to a property can be held. Consideration should be given to the Planning Act, liability and tax planning. A buyer should consult with its counsel and tax advisors prior to determining how the title will be held. When multiple parties are registered owners on title, the ownership can be as "joint tenants" or "tenants in common." Joint tenancy is used when the owners want that if one of them dies, the survivor(s) become the owner(s) by right of survivorship. Joint tenancy is frequently used by spouses for their matrimonial home. Tenancy in common means each owner owns a percentage of the registered title. If one owner dies, that owner's share is then an asset of the deceased owner's estate and
ILN Real Estate Group – Buying and Selling Real Estate Series
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