Standard Form Contracts Of Purchase And Sale For Commercial Properties: Considerations Beyond The Standard Terms – Contracts and Commercial Law

It is common practice across Canada for realtors to utilize a
standard form of purchase and sale contract for commercial real
estate (a “Standard Form Contract“)
prepared by the relevant provincial real estate association.
Standard Form Contracts are helpful resources that provide a good
roadmap for papering the agreed upon terms of a purchase and sale
transaction. Recognizing that commercial conveyances are complex by
nature and have nuances peculiar to each individual transaction,
most Standard Form Contracts contain schedules or permit the
inclusion of schedules to provide the ability to insert tailored
additional provisions or amend default Standard Form Contract
provisions.

In this article we explore the landscape of Standard Form
Contracts in Ontario, British Columbia and Alberta and examine some
commonly encountered circumstances which, if applicable to a
transaction, the parties may wish to address by incorporating
additional schedules into the Standard Form Contract.

The Standard Form Contract landscape

Standard Form Contracts contain the basic provisions of a
purchase and sale agreement that are required to carry out a
transaction. The basic terms and the form of document used for the
Standard Form Contracts vary according to jurisdiction:

Each of these Standard Form Contracts has been purposefully
designed to accommodate the inclusion of supplementary provisions
by the addition of schedules. OREA publishes a set of additional
provisions for that specific purpose and frequently updates OREA
commercial APS .

Consideration beyond the standard terms

1. Business days

All commercial property contracts contain key dates – the
deposit payment date(s), completion date, adjustment date,
possession date, etc. What happens if such dates fall on a
non-business day (i.e. weekends or holidays)? If the contract is
silent on this matter, the answer is that a dispute may arise.

Ontario, British Columbia and Alberta:

None of the Ontario OREA commercial APS , the BCREA commercial
APS or the AREA commercial APS contains a term to move key dates
which fall on a non-business day to a business day. In order to
avoid disputes and provide the parties with certainty as to what
happens if that occurs, a clause should be added into a schedule to
the Standard Form Contract confirming that any dates that do not
fall on a business day are automatically deemed to extend to the
first business day following such date.

2. Due diligence documents and confidentiality

Certain due diligence documents, such as leases, rent rolls, and
maintenance documents, must often be exchanged with the purchaser
for review during a due diligence period. If the vendor is
providing due diligence documents, it is important to consider if
these documents should remain confidential.

Ontario:

There is no provision in the OREA commercial APS that requires
the purchaser to ensure all information provided to it by the
vendor remains confidential or to return or destroy such documents
if it elects not to proceed with the transaction. As such, if
documents of a sensitive or private nature are expected to be
exchanged, then a confidentiality clause should be included to
ensure the purchaser and its agents do not disclose the information
contained in the due diligence documents. The confidentiality
clause should also obligate the purchaser to return all due
diligence items or, if such items are copies or stored digitally,
destroy them if the transaction is terminated or not completed.

British Columbia and Alberta:

The BCREA commercial APS and AREA commercial APS both include a
confidentiality clause obligating the purchaser not to disclose any
information obtained in relation to the contract to any third party
other than such persons to whom disclosure may reasonably be
required. However, the two provinces diverge with respect to the
return of documents. In British Columbia, the BCREA Commercial APS
contains no provision that obligates the purchaser to return or
destroy all due diligence items if the transaction is terminated or
not completed. Conversely, in Alberta there is a provision in the
AREA Commercial APS that obligates the purchaser to immediately
return all “Disclosure Documents,” as that term is
defined in the AREA Commercial APS, if the transaction is
terminated or not completed.

3. Inspections and risks

The vendor and the purchaser to any commercial real estate
transaction should discuss and document whether inspections will be
allowed on the property and what the scope of such inspections will
be.

Ontario and British Columbia:

Neither the OREA commercial APS nor the BCREA commercial APS
provides a right to inspect. Accordingly, if the purchaser wishes
to ensure inspections are permitted then a right to inspect should
be added to the Standard Form Contract. From the vendor’s
perspective, where inspection is permitted it is advisable to
obtain from the purchaser proof of liability insurance, a waiver of
liability for any injury sustained while inspecting the property
and an indemnity for any damage the purchaser causes while
inspecting the property. A vendor may also wish to specify whether
any invasive tests (such as sampling for environmental testing) are
permitted and give careful consideration if the agreement should
specifically prohibit inspections by certain authorities which
could result in the issuance of work orders or deficiency notices
(such as the fire department or a building inspector) will be
permitted.

Alberta:

The AREA commercial APS contains a specific section addressing
the right of the purchaser to inspect the property. It contains
parameters for inspections and also mandates that the purchaser
indemnifies the vendor for any damages.

4. Environmental matters

Environmental matters are extremely important in commercial real
property transactions. Environmental issues affecting a property
may impact on the usability of a site or result in costly
remediation obligations. As a result, the parties to a transaction
should carefully consider these issues in the context of the
Standard Form Contract.

Ontario and British Columbia:

The OREA commercial APS does not address environmental issues,
save and except confirming that the building located on the
property does not contain urea formaldehyde and noting that any
information provided by a brokerage is not environmental advice and
recommending that the parties obtain independent professional
advice prior to signing the OREA Commercial APS. Similarly, the
BCREA commercial APS contains no environmental representations or
warranties (noting, however, that the Environmental Management
Act (British Columbia) places a positive obligation on the
vendor in many circumstances to provide prospective purchasers with
a site disclosure if the vendor should or reasonably ought to know
that the property may have been used for specified industrial or
commercial uses). As such, in both provinces the purchaser and
vendor should discuss and document their agreement to include
appropriate representations, warranties and indemnities regarding
environmental matters.

Alberta:

The AREA commercial APS includes a general provision which
requires that the vendor disclose all Material Latent Defects
(defined as a defect in the property that is not discoverable
through a reasonable inspection and that will affect the use or
value of the property). It also contains representations and
warranties which provide that the vendor will disclose any notices
received with respect to environmental conditions or problems and
also that the vendor represents and warrants that the property is
in compliance with all applicable environmental laws.

5. Assignment

The rights of assignment for a contract can be very important to
both purchaser and vendor and should be carefully considered by the
parties.

Ontario and Alberta:

Neither the OREA commercial APS nor the AREA commercial APS
contains a clause prohibiting assignment or restricting it to a
nominee or affiliate of the purchaser without the consent of the
vendor, thereby permitting assignment without the vendor’s
consent. Further, neither contains a clause entitling the vendor to
any profit resulting from assignment by the purchaser or any
subsequent assignee. The vendor should carefully assess these
matters and consider adding a clause into a schedule to the
Standard Form Contract to address.

British Columbia:

The BCREA commercial APS takes the opposite approach and
prohibits any assignment without the vendor’s written consent.
Furthermore, the BCREA Commercial APS stipulates that the vendor is
entitled to any profits resulting from assignment. The purchaser
should give careful consideration to these restrictions and, if
desired, negotiate to eliminate or amend them (for example, to
allow for assignment to the purchasers’ nominees or related
entities).

6. Closing documents

Closing documents are required for all commercial property
contracts. The specific documents that are required depends on the
particulars and requirements of each individual transaction. It is
accordingly very important for the parties to give careful
consideration to the closing documents.

Ontario and British Columbia:

Neither the OREA commercial APS nor the BCREA commercial APS
enumerates closing documents. This can result in disputes between
counsel as to what closing documents are required. As an example in
Ontario, a declaration of possession is typically not provided
unless specified in the contract. However, some lawyers may insist
that a declaration of possession is required as a customary closing
document, particularly because title insurers may require this
declaration in order to issue certain title insurance coverage. To
avoid these types of disputes, parties should consider setting out
the legal documents that are required to close. As a further step,
the parties can attach agreed upon forms as exhibits to the
Standard Form Contract. Listing out the required documents in the
contract assists in setting expectations and reduces negotiations
on these documents immediately prior to closing.

Alberta:

The AREA commercial APS contains a list of necessary closing
documents. Notwithstanding that a list is included, parties should
carefully review the list to determine if any items should be
removed from the list and if any others should be added for the
specific transaction. A current issue with respect to the AREA
Commercial APS has arisen as a result of significant registration
delays at the Alberta Land Titles Office. Currently, documents
submitted for registration will not be registered for approximately
three months. However, the AREA commercial APS generally requires
registration to be complete for a closing to be completed. Unless
and until this registration delay is remedied, parties will likely
want to consider modifying the closing procedures of the AREA
Commercial APS to provide for the parties to obtain a title
insurance policy, including “gap” coverage which will
permit closing to occur prior to registration being complete.

Conclusion

The foregoing considerations represent a few items parties
commonly address by the inclusion of additional clauses in
schedules to Standard Form Contracts. It is not a comprehensive
list and there are other items that may require consideration and
incorporation according to the specific nuances of the transaction.
Where Standard Form Contracts are used, we recommend that both
purchaser and vendor consult a lawyer to discuss the specifics of
the property and the proposed transaction to determine what
additional or amended provisions, if any, may be required in order
to help ensure that the complexities of the transaction are fully
addressed.

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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.