• Sale and purchase agreement

The first document in any real estate acquisition is normally the sale and purchase agreement between the buyer and the seller. This agreement should contain all necessary business terms for the transaction, including the description of the land, purchase price, deposit (if any), due diligence and other conditions, representations and warranties, closing date and any other special terms.

• Due diligence report

Once the sale and purchase agreement is signed, it is generally the responsibility of the buyer, usually through the buyer’s lawyer, to conduct due diligence with respect to the property being acquired. This includes both title and off-title searches. Common off-title searches include a review of realty tax charges, water/sewer charges (or water quality for properties services by well or septic systems), unregistered agreements, zoning compliance, work orders, fire protection, occupancy permits, heritage designation, development charges and surveys. An independent environmental assessment is often recommended and an independent engineering review of the property, particularly in the case of property with older buildings or sensitive use sites such as former gas stations. The buyer’s lawyer will also provide a title opinion to the buyer or obtain title insurance for the buyer (in which case the lawyer will provide a title opinion to the insurer).

• Requisitions

If the results of the due diligence inquiries identify defects in title or other problems, the buyer’s lawyer will submit a requisition letter to the seller’s lawyer before the due diligence period set out in the sale and purchase agreement expires. The seller (through its lawyer) will respond to the requisition and will either repair the defect or negotiate a solution with the buyer.

The recent trend is for sellers to give limited representations and warranties. Thus, a buyer is generally responsible for conducting extensive due diligence with respect to the property to be acquired.

Parties are legally bound as soon as they execute the sale and purchase agreement, subject to the terms and conditions contained therein, including the buyer being satisfied with the results of its due diligence.

Ownership of the land is generally transferred when the deed or transfer is registered in the applicable land registration office. Prompt registration is important to preserve registration priority.

The buyer usually pays for the following:

• Its legal costs
• Due diligence costs for consultants who have prepared building condition reports, environmental assessments, valuation appraisals and real estate surveys
• Due diligence inquiries made to statutory and government bodies
• Registration fees
• Land transfer taxes*
• Sales taxes (HST or GST/PST) (if applicable)**

* Transfer tax: land transfer tax is usually paid when the transfer is registered with the land registry office and the amount of tax varies between the provinces. Some transfers can qualify for an exemption from land transfer tax. For example, in some provinces a parent corporation can transfer land to a subsidiary corporation (or vice versa) without triggering land transfer tax payment. Typically transfer of registered ownership of land triggers the transfer tax but, in some provinces, it can also be triggered when there is a transfer of beneficial ownership.

** Sales tax: in general, sales taxes apply to the supply of all real property unless there is a specific exemption. The main exemptions are for used residential property and for the sale of personal use property. The seller has the responsibility to remit the tax on behalf of the buyer. If the buyer is a GST/HST registrant, it may be permitted to self-assess the GST/HST and the seller will not need to collect the GST/HST at the time of the transfer.

The seller usually pays for the following:

• Real estate agent’s commission*
• Its legal costs
• Income tax on any profit made on the sale of the real estate (capital gains)**

* Commission: buyer’s agent’s fees are usually paid out of the listing agent’s fees rather than by the buyer. Typically commission is paid out of the purchase price on closing. Commission are subject to sales taxes (HST or GST/PST).

** Income tax: unless a specific exemption applies there will be income tax payable on the sale of real estate. The main exemption is on the sale of an individual’s principal residence. If a seller is a non-resident of Canada there is an additional tax imposed on the gain on disposition of real property. Non-resident sellers must provide the buyer with a clearance certificate from the government pursuant to section 116 of the Income Tax Act (Canada).