Buying your own building can feel like a milestone. Rent stops going to someone else, the business gains a long-term address, and a Brampton property may become one of the most valuable assets you ever own. It is also a transaction where the buyer is expected to look after itself. A home purchase has several consumer-oriented protections and conventions. A commercial deal has far fewer, and sellers often sell “as is, where is”.
The sharpest risks are usually discovered, or missed, in the days between signing the agreement and waiving conditions. Once the conditions are gone, a buyer who wants out may lose its deposit and face a claim for damages. Most of this article is therefore about what needs to be investigated while you can still walk away.
This article provides general information and is not legal advice. Each property and deal is different. Have a lawyer review the agreement before you sign it, not after, since that is when you can still change it.
Start With the Agreement, Not the Closing
People sometimes think of a real estate lawyer as someone who arranges the closing. For commercial property, the most valuable legal work is often at the start. A standard form agreement of purchase and sale may be a starting point, but it was not written with your specific purchase in mind.
Key points to negotiate include:
- A real due diligence condition. A broad condition allowing the buyer to investigate for a period of, say, 30 to 90 days, and waive or terminate in its sole discretion, is far more useful than a narrow financing condition. Build in enough time for the environmental and zoning work, since consultants have their own schedules.
- Seller’s documents. Require delivery of leases, surveys, environmental reports, building plans, property tax bills, service contracts, and income statements within a stated number of days, and make the review period run from delivery.
- Access. You need the right to enter for inspections and, if needed, soil sampling. Sellers can be sensitive about intrusive testing, so get this resolved in writing.
- Representations and warranties. Ask for statements about matters such as compliance, litigation, and environmental condition, and decide whether they survive closing. Many commercial deals limit them.
- Who the buyer is. Include a right to assign the agreement to a related company, so you are able to decide about your purchasing entity later.
Deposits are often significant, so make sure they are held in trust and returned if you properly end the deal under a condition. Pay attention to how notice must be given, too. A waiver or termination sent the wrong way, or one minute late, can be costly.
Zoning: Can You Actually Use It the Way You Plan?
This is the first question for many Brampton buyers, and in some sectors it is the biggest risk in the deal. A building being used a certain way does not prove the use is permitted. The previous occupant may have had a legal non-conforming use, a site-specific by-law, a temporary permission, or no permission at all.
Trucking and logistics buyers need to be especially careful. The City of Brampton states that commercial storage and truck parking are permitted only on lands zoned for them, and that outdoor storage and oversized vehicle parking are generally not allowed on vacant, commercial, agricultural, or residential lots or in front yards. Unauthorized operations can lead to fines. Changing a site’s use may require a zoning by-law amendment and possibly site plan approval. Seeing trucks parked on a lot does not mean a business can keep parking them there after it buys the land.
Brampton’s zoning framework itself has been under comprehensive review, with site-specific exceptions on many parcels. Do not rely on a general summary of the zoning category or on what the listing broker says. Ask for a zoning certificate or written confirmation from the City wherever possible, and have your lawyer or a planner review the actual zone, exceptions, and any transition rules for your parcel. Confirm parking requirements as well, since a change of use may require more parking than the site can provide.
Also check:
- whether the Brampton Plan and any secondary plan affect your intended use
- whether part of the lot is regulated by the conservation authority, which may be Credit Valley Conservation or Toronto and Region Conservation in Brampton, depending on its watershed location
- whether heritage designations, site plan agreements, or road widening requirements apply
- if you’re planning a building addition, the cost of development charges and permits, which are often much higher than expected
Title and What Comes With the Land
A title search shows who owns the land and what is registered against it. You are looking for more than just a clear owner. Registered easements can limit where you can build. Restrictive covenants can restrict uses. Site plan and development agreements can impose obligations on successive owners. Mortgages, construction liens, and notices may need to be discharged or addressed at closing.
A current survey helps you see what the paper actually means on the ground. Does the fence match the boundary? Does the neighbouring property’s driveway cross your lot? Does your own building encroach onto the neighbour’s land or an easement? If a seller has only an old survey, consider ordering a new one.
If you are buying part of a larger parcel, ask about the Planning Act. Section 50 restricts dividing land unless a permitted route, such as severance consent or a plan of subdivision, is followed. A transfer in contravention of those rules does not create an interest in land. Title insurance can be useful, but read its exclusions. It does not replace due diligence.
Off-title searches are just as important and are normally done before closing. These may include property tax arrears, work orders from the building and fire departments, outstanding permits, and utility accounts. A fire safety order or an open building permit can become your problem.
Environmental: The Risk That Can Outlast the Deal
Past uses of a site can leave contamination that is expensive to clean up. Fuel tanks, truck maintenance, dry cleaning, auto repair, and industrial uses all raise concerns. Environmental liability can reach the current owner, even if it didn’t cause the contamination, and it may also harm the value of your investment and your ability to refinance.
A Phase I environmental site assessment is a common starting point. A consultant reviews the site’s historical use, records, and conditions, and identifies potential concerns. If those are found, a Phase II assessment involves actual sampling of soil and groundwater. Your lender may insist on these and may require that it be able to rely on the report.
If you plan to change the property to a more sensitive use, for example from industrial to residential or some community uses, Ontario’s Environmental Protection Act and Ontario Regulation 153/04 may require a record of site condition. That process can take significant time and money, so factor it in before waiving any condition. Do not assume that “as is” language can simply be ignored. It can pass the risk to you, and that is exactly what the seller wants it to do.
Inspecting the Building
An engineer’s building condition assessment should look at the roof, structure, mechanical systems, electrical capacity, and drainage. Buyers of industrial units should also check loading dock counts, clear height, floor load, and power supply against what their operations need. Your business’s insurer may have specific questions about sprinklers and construction. A building that needs a new roof in two years, or lacks the power your equipment requires, changes the price you should pay.
Consider accessibility and any Fire Code and Building Code issues raised by your planned use. A change in occupancy can require a building permit and upgrades, even when you aren’t doing any visible construction.
If There Are Tenants
Buying a plaza or multi-tenant building means buying into existing leases. A purchaser generally takes the property subject to them, so a lease with a low rent and a long renewal option remains your issue. Review every lease and watch for:
- renewal, expansion, or exclusive-use rights that restrict who you can lease to
- rights of first refusal, which might be triggered by the sale itself
- the amount of the security deposit, and how that transfers
- a clear allocation of who pays for taxes, maintenance, and capital repairs
- any landlord defaults or rent arrears
Ask for tenant estoppel certificates, in which each tenant confirms the key terms and states whether it claims any default. A lender may also require them, along with postponement agreements. If you are planning to occupy space yourself, check whether and when you could actually end an existing tenant’s lease. Assuming you can move in on closing is a costly mistake.
HST and Land Transfer Tax
Taxes are a regular surprise for first-time commercial buyers.
HST. A sale of commercial real property is generally subject to HST at 13% in Ontario, unlike many resales of used residential property. Where the buyer is registered for GST/HST, it may generally self-assess instead of paying the amount to the seller at closing. A business that uses the property fully in commercial activities may be able to claim an offsetting input tax credit. A buyer that is not registered may have to pay HST to the seller in cash. The agreement should clearly say whether the price includes or excludes HST and require evidence of registration where self-assessment applies. Mixed-use properties can be more complicated. Talk to your accountant.
Land transfer tax. Ontario’s rates for non-residential land are 0.5% up to $55,000, 1% from there to $250,000, 1.5% from there to $400,000, and 2% above $400,000. On a hypothetical $2,000,000 purchase, this comes to $36,475. Toronto also charges a municipal land transfer tax, but Brampton does not, so buyers relocating from Toronto should not budget for it. Tax is calculated on the value of the consideration, which can include assumed debts in some cases.
Also consider the seller. If a vendor is not resident in Canada, section 116 of the Income Tax Act can expose a buyer to tax unless the buyer gets a certificate or holds back an amount. Get a statutory declaration of residency, and take it seriously.
Who Should Hold Title?
Many owners instinctively put a building in their operating company. Doing so can expose the property to the operating company’s liabilities and may affect the eligibility of the company’s shares for the capital gains exemption. It is common to look at holding property in a separate related corporation that leases to the operating business, though that is a decision for your lawyer and accountant, not a default.
Your choice affects financing, HST registration, insurance, and how you might later sell. Lenders often require personal guarantees whichever entity you use, as well as a general security agreement and an assignment of rents. Read the commitment letter carefully, since it may contain conditions that take time to satisfy.
Bringing It Together
A realistic timeline might start with a lawyer’s review of the offer, move to a due diligence period with consultants working at the same time, and only then lead to a decision to waive. Keep a single checklist of who is responsible for which item and when conditions expire. Our corporate law group can help with the transaction structure, your commercial contracts, and related advice, and if a dispute develops afterward, our real estate and mortgage litigation team may be able to assist. A careful purchase rarely makes for an exciting story, and that is the point of doing it carefully.