Commercial Real Estate Transactions

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Questions and Answers

What is a common term used to refer to the buyer in a commercial real estate transaction?

Vendor

Broker

Purchaser (correct)

Landlord

What distinguishes the financing of commercial real estate from residential real estate?

Commercial transactions typically have more documentation and requirements. (correct)

Both require equal documentation.

Commercial financing requires no documentation.

Residential transactions are usually larger in size.

Which of the following is a condition that can allow buyers to withdraw from a commercial real estate agreement?

Lawyer's approval of the agreement terms. (correct)

Approval from a financial institution.

Seller's agreement must be signed.

Completion of a property inspection.

What type of lender is most commonly associated with commercial real estate financing?

Chartered banks Signup and view all the answers

What does the term 'pre-condition' refer to in the context of a real estate agreement?

A condition that must be met for the agreement to be effective. Signup and view all the answers

Which document is primarily referenced for reviewing terms in a commercial real estate transaction?

Purchase Agreement Signup and view all the answers

Which of the following statements about the registration process in commercial real estate is true?

It follows the same procedures as residential property registrations. Signup and view all the answers

Who can also provide financing aside from commercial lenders?

Family and friends Signup and view all the answers

What should be confirmed when conducting a search for a corporate borrower involved in retail, wholesale, manufacturing, or farming activity?

Claims registered under section 427 of the Bank Act Signup and view all the answers

Which tax contributions need to be ensured for source deductions?

Canada Pension Plan and Employment Insurance contributions Signup and view all the answers

What type of letter is sent to Alberta Environment when conducting an environmental search?

Letter requesting information on work orders related to environmental concerns Signup and view all the answers

When is a search for bankruptcy typically conducted?

By phone followed by a letter for search results Signup and view all the answers

What is the purpose of searching the Canadian Intellectual Property Office (CIPO)?

To ascertain whether registrations have been made for patents, copyrights, and industrial designs Signup and view all the answers

What type of claims does the Employment Standards search focus on?

Claims or actions by employees Signup and view all the answers

What must be confirmed with the Bank of Canada in relation to section 427?

Whether any claims are registered against the borrower Signup and view all the answers

When searching for unpaid assessments related to federal taxes, which entity should be contacted?

Federal Court of Canada Signup and view all the answers

What does a security interest generally secure?

The performance of an obligation owed to the creditor Signup and view all the answers

Which of the following is NOT typically a method for a creditor to declare a debtor in default?

Minor payment delays Signup and view all the answers

What can prevent a creditor from declaring a minor default?

Materiality qualifications Signup and view all the answers

What is a common feature of loan agreements made by creditors?

Onerous clauses favoring the creditor Signup and view all the answers

What happens if a debtor gives a security interest to multiple creditors?

Creditors compete to seize and sell property Signup and view all the answers

Which provision might allow a creditor to declare a default under certain conditions?

Cross default provisions Signup and view all the answers

What legal limitation exists regarding a creditor declaring a default?

Requirements of commercial reasonableness Signup and view all the answers

Which document typically outlines the terms of a security interest?

Financing document Signup and view all the answers

What is the primary purpose of contacting Canada Revenue Agency Tax Services on the date closing documents are sent to the purchaser's solicitor?

To confirm the purchaser has a valid GST registration number. Signup and view all the answers

What must the purchaser verify before ownership or possession is acquired to use the section 221(2) exemption?

That the purchaser is registered under the Excise Tax Act. Signup and view all the answers

What form must the purchaser file with Canada Revenue Agency to recover GST if it has been paid?

GST 60 Signup and view all the answers

Which of the following information is NOT required when completing the GST 60 form?

Vendor's contact number Signup and view all the answers

Why is it advisable to run a mock closing in complicated business transactions?

To ensure all parties are present for the signing meeting. Signup and view all the answers

What type of documents common in business transactions may evolve over time?

Closing documents and contracts. Signup and view all the answers

Which of the following is an essential document in transactions involving personal property?

Bill of Sale. Signup and view all the answers

What should occur if GST is payable on the transaction?

Purchaser should pay GST directly to Canada Revenue Agency. Signup and view all the answers

What type of document does not create a security interest in property?

Promissory Note Signup and view all the answers

Which statement correctly describes the function of a promissory note?

It constitutes a promise to pay a specific amount. Signup and view all the answers

What protects the borrower when a promissory note is negotiated to a third party?

The borrower is not liable to the new holder if terms were breached. Signup and view all the answers

What characteristic is NOT required for a promissory note to qualify as a negotiable instrument?

It must have a specified interest rate. Signup and view all the answers

In the event of a default, what right does a true security interest provide to the creditor?

The right to seize and sell the pledged property. Signup and view all the answers

What role does the promisor play in a promissory note?

The person who promises to repay the loan. Signup and view all the answers

Why are documents like promissory notes often referred to as 'collateral security'?

They do not provide any security but are seen as supporting documents. Signup and view all the answers

What happens if a third party qualifies as a 'holder in due course' concerning a promissory note?

The third party can sue the borrower on the note. Signup and view all the answers

Study Notes

Commercial Real Estate Purchase

Purchasing commercial real estate is similar to residential real estate with similar legal terminology, documents, and registration processes.
Commercial transactions often involve more significant financial amounts, resulting in more stringent documentation and requirements for financing.
Common sources for commercial real estate financing include chartered banks, vendor loans, family and friends.
The specific circumstances of a transaction will determine the type of searches and documents required.

Reviewing the Agreement

A crucial term in a purchase agreement for commercial real estate often is a "subject to lawyer's approval" clause, which is a condition that must be met for the agreement to be effective.
This condition gives the buyers the right to withdraw from the agreement if their lawyer doesn't approve of the terms.

Conducting Due Diligence in Commercial Property Transactions

Bank of Canada: Conduct a search to identify any claims registered against the corporate borrower under section 427 of the Bank Act. This search usually applies to companies involved in retail, wholesale, manufacturing, or farming.
Industry Canada: Check for bankruptcy status of the corporate borrower through a phone call or online search on the Industry Canada website.
Employment Standards: Request information from the Employment Standards agency related to any claims or actions by employees, if applicable.
Canada Revenue Agency: Verify source deductions are being made for Canada Pension Plan and Employment Insurance contributions.
Federal Court of Canada: Search for any certificates filed under section 223 of the Income Tax Act, relating to unpaid federal taxes such as income tax, EI premiums, GST remittances, and other federal taxes.
Environmental Search: Conduct an environmental search if concerns exist regarding the property. This typically involves contacting the relevant environmental agency.
Patents, Copyright and Industrial Design: If intellectual property is involved in the transaction, search the Canadian Intellectual Property Office (CIPO) for any registrations.

Responsibilities for the Purchaser

The purchaser's legal counsel should confirm that the purchaser is registered with the appropriate government agency before acquiring ownership or possession of the property.
If the purchaser is eligible to recover GST on the transaction, advise them to file the appropriate form with Canada Revenue Agency.
If the purchaser is liable for GST on the transaction, inform them to pay the GST directly to Canada Revenue Agency

Essential Documents In Commercial Transactions

When acting on behalf of either the buyer or the seller, businesses need to prepare and review a substantial number of documents.
Common documents include bills of sale for personal property, assignments of contracts, and closing statements.
It is advisable to conduct a mock closing before the actual closing date to review the documents and ensure that everyone is prepared for the signing meeting.

Security Interests

A security interest gives the creditor the right to seize and sell the debtor’s property in the event of default on a loan.

Types of Financing Documents

Promissory Note: A promissory note typically serves as collateral security and doesn’t create a security interest in the property. It is considered a negotiable instrument, and a lender can transfer this note to a third party, which is a risk for the borrower.

Key Information about Promissory Notes

In order to qualify as a negotiable instrument, a promissory note must meet specific requirements:
- It must be in writing.
- The promise to pay must be unconditional.
- The amount payable must be a fixed sum or calculated through a stated formula.

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Description

This quiz covers the essential aspects of purchasing commercial real estate, including legal terminology, financing options, and review processes. It also explores due diligence requirements and specific clauses in purchase agreements that can affect the transaction. Test your knowledge on the nuances of commercial property transactions.