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Commercial Real Estate Transactions - Due Diligence Considerations for Purchasers

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Conducting appropriate due diligence is a fundamental part of any commercial real estate transaction. For purchasers, due diligence is necessary to adequately inform them as to the nature of the property and to assess the covenant of the vendor before committing to the purchase. For vendors, due diligence can save time and costs, as well as alert them of potential issues that may need to be dealt with before closing. This article is Part One of a two-part series where we will outline how commercial real estate lawyers can assist purchasers and vendors with their due diligence respect to the purchase and sale of commercial properties. In this Part One, we will be discussing the due diligence considerations from the perspective of the prospective purchaser. In Part Two, we will explain the due diligence we recommend vendors undertake when preparing to sell their commercial property.


Corporate Amalgamation: What is it, How is it Done, Why do it?

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Amalgamation (also known as merger) in the corporate world refers to a process whereby two or more corporations unite to form one corporation and continue in existence as this one corporation. The analogy often used is that amalgamation is like two streams coming together to form one larger river. The assets and liabilities of each corporation would flow and continue within this amalgamated corporation. The shareholders of each predecessor corporation would become the shareholders of the amalgamated corporation.


Private Mortgage Lending: What Private Lenders Need to Know

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As borrowers look to obtain mortgage financing for residential properties, many will continue to face difficulties securing such financing from traditional institutional lenders (e.g., the major banks) due to stricter mortgage rules. As such, many of these borrowers will flock towards private mortgage lenders to secure the funds they need to purchase a home, renovate, consolidate debt, etc. Indeed, there has recently been a sharp increase in consumers working with private lenders for mortgage refinancing in the Greater Toronto Area. Although there are typically higher risks involved in private mortgages, private lending is becoming a trend that we believe will continue to proliferate in the current market.


What Does it Mean to Personally Guarantee a Corporate Business Loan?

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Many business owners will need to secure financing from a bank or other financial institution at some point during the business cycle. The loaned funds may be required for working capital or capital expenditures. If you are running your business through a corporation, you may think that since the funds are being loaned to your corporation, only the corporation’s assets are at risk upon any default; after all, the corporation is a separate legal entity and you incorporated your business as a means of limiting your personal liability and separating the business assets from your personal assets. However, most lenders will require that you sign a personal guarantee before agreeing to lend funds to your corporation.


Attention Professionals: What You Should Know About Professional Corporations

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Since late 2001, regulated professionals such as lawyers, accountants, physicians, dentists, chiropractors, veterinarians, architects, engineers, and regulated health professionals have been allowed to offer their professional services (as well as ancillary or related services) through what are called “professional corporations” (“PCs”). In so doing, these professionals can take advantage of some of the benefits that incorporating a business brings, mainly with respect to tax incentives (e.g., tax deferral, income splitting, dividend payouts, etc.). However, while PCs share many of the same facets of other corporations, there are some important differences, which are the result of the specific rules and by-laws of the governing bodies of the regulated professions and relevant legislation.


Assigning Agreements of Purchase and Sale for Used Residential Properties

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The Ontario Real Estate Association (OREA) form of Agreement of Purchase and Sale (APS) for residential resale homes contains many boilerplate provisions that are found in most contracts. However, one provision that is not contained in this standard APS is in respect to “assignment”. An assignment occurs when a party assigns (i.e., transfers) all of its legal rights and interest in the APS to a third party (the “Assignee”), following which this Assignee then becomes the party in the place and stead of the person who has made this assignment (the “Assignor”). The Assignee is not buying the property from the Assignor, but is rather buying the Assignor’s right to acquire the property from the Seller. The Assignee assumes and agrees to perform all of the Assignor’s obligations under the original APS, including paying the purchase price and adjustment costs on closing – in essence, the Assignee steps into the shoes of the Assignor as Buyer and completes the transaction with the Seller.


Factors to Consider When Deciding Who to Appoint as your Estate Trustee

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When providing instructions to your solicitor for preparing your Will, one of the first questions that he or she will ask is who you want to act as your estate trustee (also referred to as an executor/executrix). In short, an estate trustee is a personal representative appointed in a Will to consolidate and distribute the assets of an estate and attend to the payment of any liabilities. It is the estate trustee’s responsibility to carry out the terms of your Will and ensure that your final wishes are respected and fulfilled. Estate trustees are entitled to fair and reasonable compensation from the estate for their role in administering the estate, but they need not take such compensation. You can choose one or multiple estate trustees, and you should also appoint an alternate estate trustee in case your first choice(s) refuses to assume the role, dies before you, or is incapable of acting. The choice of whom you appoint as your estate trustee is a very significant decision that should be carefully considered. Ultimately, it will be your beneficiaries in your Will who will be the most impacted by your decision. Although your estate trustee must follow your wishes as stated in your Will, most Wills provide your estate trustee with a certain level of discretion in making various decisions regarding your assets.


When are you Personally Liable for your Corporation's Debts and Obligations?

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You’ve done your homework, consulted with your accountant and lawyer, and have decided that it is the right time to incorporate your small business. You want to take advantage of some of the main benefits of incorporation: potential tax savings and limited personal liability. This latter benefit is a result of the fact that corporations are considered separate legal persons under the law. This means that they are distinct from their shareholders (i.e., owners), and therefore can shield their shareholders’ personal assets from creditors of the corporation. This corporate separateness is the entrenched rule established in the 1800s to keep shareholders immune from personal liability; it is codified by legislation, such as the Ontario Business Corporations Act (OBCA). As such, the courts are very reluctant to “pierce the corporate veil”; that is, they will rarely look behind the corporation to its shareholders, directors and officers for holding such persons personally liable for the acts of the corporation. However, there are some exceptions created by case law (albeit each requiring a high burden of proof), where a court will deem it just and equitable to pierce the corporate veil. These exceptions should be understood by small business owners who have incorporated their business, as well as by legitimate creditors looking to recover money owed to them.


Structuring Your Company’s Share Provisions: Involve Your Lawyer and Accountant

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One of the key considerations when incorporating a new company is how to structure the share provisions in the articles of incorporation. These provisions will dictate the number of shares the corporation can have (i.e., authorized capital), the different types or “classes” of shares (e.g., common, special, preferred, etc.), and the share attributes attaching to each class of shares (e.g., the right to vote, to receive dividends, to receive the remaining property upon the corporation’s dissolution, liquidation or winding-up, etc.). Because the decision to create a corporation or amend one’s existing share provisions is typically driven and influenced by tax considerations, it is always recommended to consult your accountant before having your lawyer draft such share provisions.  In addition to complying with the governing corporate laws surrounding share structures for private corporations, you will want to ensure they are prepared in such a way that will allow you to take advantage of possible tax incentives that may be available to you based on advice from your accountant or other tax professional.


Protecting Your Interest in Land Via Registration of a Notice or Caution Against Title

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There is a well-known term in law called “a bona fide purchaser for value without notice”. It refers to a person who has purchased a property for some value (i.e., not as a gift) without receiving notice of any other party’s competing interest in such property. The significance of such label in the real estate context is that the purchaser for value without notice will take good and valid title to the real estate despite competing claims of other parties to the property where such competing claims are not made known to the public via registration against title.


Have a Mortgage on Your Property? Don't Forget to Read the Standard Charge Terms

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In the majority of residential real estate purchases, the purchaser must obtain a mortgage in order to finance the purchase of the property. In these mortgage transactions, the borrower is known as the “Chargor”, while the lender is called the “Chargee”. Most people understand the general concept of a mortgage: it is a type of loan where a lender agrees to loan a significant sum of money (at a specific rate of interest) towards a borrower’s purchase of a property in exchange for such property serving as the borrower’s collateral. Most people also understand the concept of interest rates, the term, amortization schedule, and approval process. However, for many Chargors, the extent of their knowledge and focus on mortgages ends there. Just as important to understand is that when a mortgage is registered on a property (called a “charge”) to secure the Chargee’s loan, a set of Standard Charge Terms (SCT) is also incorporated by reference into this registered charge. The SCT can vary from Chargee to Chargee, but there are key commonalities in most SCT that every Chargor should read and consider. 


How Marijuana Legalization Will Shake Up the Residential Real Estate Industry

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The summer of 2018 will see the federal government pass historic laws that will allow Canadians to smoke, eat or vape marijuana in their homes and grow up to four plants per household. Known as Bill C-45, the Cannabis Act, this legislation when passed will undoubtedly cause a stir in the residential real estate industry as it will affect homeowners, agents, brokers, insurance companies, home inspectors and lawyers. The new laws surrounding cannabis and its use may force many key players in this industry to adapt and change their terms, criteria and policies that expressly or impliedly involve marijuana.  For instance, existing home insurance policies, standard mortgage terms, condo corporation rules, and nuisance laws may need to be revisited and possibly amended to coincide with these new laws on marijuana use and grow-ops.


The Co-Ownership Agreement: What is it and How is it Useful?

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In today’s real estate market, with rising interest rates and stricter mortgage rules, it is becoming more and more difficult and unrealistic to afford a home using your own means alone. We have been noticing an increase in parents helping their children buy their first home by agreeing to co-sign on their mortgage and/or providing the bulk of the down-payment funds. There has also been a more pronounced need for adding people on title and on the mortgage in order to qualify for a mortgage or mortgage re-financing. More unique is the recent trend of real estate speed-dating events, where people can meet strangers interested in purchasing a home together by pooling their funds and credit scores; through this arrangement, each of them can finally break into the property market and start to build that tantalizing homeowner benefit: home equity.


Do I Have a Legally Binding Contract?

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While it may seem like a simple answer, at times many people do not truly know whether they have a legally binding agreement with another party, or what basic principles are actually required for contract formation. Have you thought there was a contract in place but the agreement was not binding? Have you been party to a binding contract when you thought you were still trying to reach an agreement? Misunderstandings around the basics of how and when a contract is created can lead to numerous and potentially severe consequences for parties doing business together.   


Protecting Your Children's Inheritance When in a Second Marriage

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Second marriages are becoming more and more common in today’s society. In such marital situations, it is typical for the spouses to have their own children from a previous relationship. Although each spouse may want to ensure the surviving spouse is looked after upon one of their deaths, their more primary concern is usually ensuring that the majority of their assets pass to their own respective children. It is important that you understand your legal rights and options in relation to your spouse's estate when in such second marriage situations.

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