Commercial Property

A commercial property purchase involves buying the real estate (land and buildings) only. A business purchase involves buying the real estate plus the business operating in the building — including inventory, equipment, goodwill, customer lists, and contracts. In a business purchase, the buyer acquires not only the property but also the ongoing business and its assets. A commercial property purchase is typically simpler and involves real estate law; a business purchase is more complex and involves corporate law, tax law, and commercial law. In a business purchase, the buyer must conduct due diligence on the business itself — reviewing financial statements, customer contracts, employee agreements, and liabilities. A business purchase may also trigger different tax implications, including HST, capital gains tax, and corporate tax. A commercial real estate lawyer handles the real estate aspects of a business purchase and typically works with a corporate lawyer to handle the business and tax aspects. Howard Nightingale Professional Corporation handles both commercial property purchases and business purchases for Toronto and Ontario clients.

“A commercial property purchase involves buying the real estate only. A business purchase involves buying the real estate plus the business — inventory, equipment, goodwill, and contracts. Business purchases are more complex and involve corporate and tax law.”

A “charge back” or “take-back mortgage” is a mortgage given by the buyer to the seller as part of the purchase price. Instead of the buyer paying the entire purchase price in cash at closing, the buyer pays a portion in cash and gives the seller a mortgage for the remainder. For example, if a property is selling for $1,000,000 and the buyer has $600,000 in cash, the buyer may give the seller a $400,000 mortgage. The seller then becomes the lender and receives monthly mortgage payments from the buyer. A take-back mortgage is common in commercial real estate transactions where the buyer cannot obtain full financing from a traditional lender, or where the seller wishes to finance part of the sale to facilitate the transaction. A commercial real estate lawyer prepares the take-back mortgage, registers it in the land registry, and ensures it is properly secured. The lawyer also advises on default provisions, interest rates, and the seller’s remedies if the buyer defaults.

“A ‘take-back mortgage’ is a mortgage given by the buyer to the seller as part of the purchase price — common in commercial transactions where the buyer cannot obtain full financing from a traditional lender.”

A survey is a detailed map of a property prepared by a licensed surveyor that shows the property’s boundaries, dimensions, buildings, structures, easements, and encroachments. A survey verifies that the property boundaries match the legal description in the deed and identifies any encroachments (e.g., a neighbor’s fence or building extending onto the property) or easements (e.g., a utility right-of-way across the property). For commercial real estate purchases in Ontario, a survey is not always legally required, but it is strongly recommended and is often required by lenders. An up-to-date survey costs $1,500 to $5,000 depending on property size and complexity. If a recent survey exists (typically less than 5 years old), it may be acceptable; if not, a new survey should be ordered. A commercial real estate lawyer reviews the survey and advises on any boundary issues or encroachments that may affect the property’s use or value.

“A survey is a detailed map showing property boundaries, buildings, easements, and encroachments — not legally required but strongly recommended and often required by lenders. Cost: $1,500–$5,000.”

A Personal Property Security Agreement (PPSA) is a legal document that creates a security interest in personal property (moveable assets such as equipment, inventory, or fixtures) to secure a loan or debt. In commercial real estate transactions, a PPSA is used when a seller is taking back a mortgage or when a buyer is financing equipment or fixtures. A PPSA must be registered under Ontario’s Personal Property Security Act (PPSA) to be enforceable against third parties. Before closing a commercial real estate purchase, a commercial real estate lawyer searches the Personal Property Registry to identify any existing PPSA registrations against the property or equipment — these registrations may affect the buyer’s ownership or financing. If a seller is taking back a mortgage or charge, the lawyer prepares the PPSA and registers it to protect the seller’s security interest. A PPSA search typically costs $50 to $100 and is a standard part of commercial due diligence.

“A Personal Property Security Agreement (PPSA) creates a security interest in moveable assets — it must be registered under Ontario’s PPSA to be enforceable. A PPSA search is standard in commercial due diligence.”

HST (Harmonized Sales Tax) is a 13% tax applied to most goods and services in Ontario, including commercial real estate purchases. When purchasing commercial real estate in Ontario, HST is calculated on the purchase price and must be paid by the buyer at closing. For example, on a $1,000,000 commercial property purchase in Ontario, the HST is $130,000 — a significant additional cost. However, HST exemptions and rebates may apply in certain circumstances: if the property qualifies as a residential property (four or fewer residential units), HST may not apply; if the buyer is a registered HST filer and uses the property for commercial purposes, the buyer may be eligible for an HST rebate; and if the property is being purchased for resale, special rules may apply. A commercial real estate lawyer calculates HST applicability and advises on any available exemptions or rebates. This is a critical calculation that must be done correctly, as HST can represent 10% to 15% of the total closing costs.

“HST (13%) applies to commercial real estate purchases in Ontario — on a $1,000,000 purchase, HST adds $130,000 to closing costs. HST exemptions and rebates may apply in certain circumstances.”

When reviewing a commercial lease in Ontario, a lawyer looks for: Base Rent and Additional Rent — confirm the monthly rent amount, rent escalation schedule, and any additional rent (property taxes, insurance, common area maintenance, utilities); Lease Term and Renewal — verify the lease length, renewal options, and any automatic renewal provisions; Permitted Use — confirm the tenant’s permitted use aligns with zoning and the landlord’s intentions; Maintenance and Repairs — clarify who is responsible for building maintenance, HVAC, plumbing, roof repairs, and capital improvements; Insurance and Liability — confirm the tenant carries adequate liability insurance and the landlord is named as additional insured; Default and Termination — review default provisions, notice periods, and remedies for non-payment or breach; Lease Renewal and Termination Notices — identify notice periods required to terminate or renew the lease; Assignment and Subletting — confirm restrictions on the tenant’s ability to assign the lease or sublet the space; Environmental Compliance — ensure the tenant is responsible for environmental compliance and remediation of any contamination caused by the tenant; and Dispute Resolution — review any arbitration or mediation clauses. A commercial real estate lawyer reviews all leases before closing to identify unfavorable terms and negotiate amendments.

“When reviewing a commercial lease in Ontario, a lawyer examines base rent, additional rent, lease term, permitted use, maintenance responsibility, insurance, default provisions, assignment restrictions, and environmental compliance.”

A Phase I Environmental Site Assessment (ESA) is a records review and site inspection conducted by an environmental professional to identify potential environmental contamination or risks at a property. The Phase I ESA includes: reviewing the property’s historical use and ownership; inspecting the site for visible contamination, underground storage tanks, or hazardous materials; reviewing municipal records for environmental violations or cleanup orders; and interviewing current and former property owners and operators. A Phase I ESA typically costs $1,500 to $3,000 and takes 2 to 4 weeks. If the Phase I ESA identifies potential contamination, a Phase II ESA — which includes soil and groundwater sampling and laboratory testing — may be required. Phase II ESAs typically cost $5,000 to $15,000 and take 4 to 8 weeks. In Ontario, lenders typically require a Phase I ESA for any commercial real estate purchase; many lenders also require a Phase II if the Phase I identifies concerns. A commercial real estate lawyer coordinates the ESA process and reviews the results.

“A Phase I ESA is a records review and site inspection to identify environmental contamination — typically $1,500–$3,000 and required by most Ontario lenders. Phase II ESAs (soil/groundwater testing) cost $5,000–$15,000 if contamination is suspected.”

In Ontario, zoning is a municipal bylaw that specifies what types of uses are permitted on a property — for example, commercial, industrial, residential, agricultural, or mixed-use. Zoning bylaws also specify building requirements such as height, setback from property lines, parking ratios, and signage. When purchasing commercial real estate in Ontario, it is critical to verify that the property’s current zoning permits your intended use. If the current zoning does not permit your use, you may need to apply for a zoning variance or rezoning from the municipality — a process that can take months or years and is not guaranteed to succeed. A zoning violation — using a property in a way that violates the municipal zoning bylaw — can result in the municipality issuing a stop-use order, fines, or forced remediation. A commercial real estate lawyer verifies zoning compliance as part of due diligence and advises on the feasibility and timeline of any required zoning changes.

“In Ontario, zoning bylaws specify what uses are permitted on a property. Verifying zoning compliance before purchase is critical — a zoning violation can result in stop-use orders and fines.”

The purchase and sale of commercial real estate in Ontario is significantly more complex than residential transactions. A commercial real estate lawyer must conduct due diligence on: the property’s title and ownership history; zoning and land use compliance; existing leases and tenant agreements; environmental condition through Phase I and Phase II Environmental Site Assessments (ESAs); survey accuracy and boundary verification; HST applicability and calculation; personal property security registrations; and mortgage or charge-back arrangements. The lawyer reviews all agreements, requisitions, and closing documents; calculates and remits HST (if applicable) and land transfer taxes; and coordinates the closing with all parties. Howard Nightingale Professional Corporation handles all aspects of commercial real estate purchases and sales for Toronto, North York, and Ontario clients, from initial due diligence through closing.

“The purchase and sale of commercial real estate in Ontario involves due diligence on title, zoning, existing leases, environmental condition, surveys, HST, and personal property security — significantly more complex than residential transactions.”

A commercial real estate due diligence checklist in Ontario includes: Title Review — confirm the seller has clear title, identify any liens, mortgages, or encumbrances; Zoning Verification — confirm the property’s current zoning permits the intended use and that no zoning violations exist; Environmental Site Assessment (ESA) — conduct a Phase I ESA (records review and site inspection) and, if needed, a Phase II ESA (soil and groundwater testing); Survey Review — verify property boundaries, easements, and encroachments; Lease and Tenancy Review — review all existing leases, rental agreements, and tenant rights; Building Permits and Compliance — confirm all building permits were obtained and work was completed to code; Property Tax Assessment — review current assessment and any pending appeals; Utilities and Services — confirm water, sewer, hydro, and internet services are adequate; Insurance and Liability — review existing property and liability insurance; and Personal Property Security Search — search the Personal Property Registry for any liens or security interests. A commercial real estate lawyer prepares this checklist and coordinates all due diligence items before closing.

“A commercial real estate due diligence checklist in Ontario includes title review, zoning verification, Phase I/II ESAs, survey review, lease review, building permits, tax assessment, utilities, insurance, and personal property security searches.”