How to Prepare Closing Documents in a Commercial Real Estate Transaction

Updated June 2012

This How-To Brief outlines the essential elements of handling the closing of a typical commercial real estate transaction in a reasonable manner. It identifies 10 categories of tasks, listing specific closing documents that are often required to complete a commercial real estate transaction.

Commercial real estate transactions are often complex and, by their very nature, can vary materially from file to file. The purpose of this How-To Brief is to provide guidance on the steps generally required to complete such transactions. The sample documents contained in this How-To Brief are examples of the types of documents that may be required to complete the transactions. They are not intended to be used as standard forms. Given the complexity of such transactions, the lawyer responsible for the file should always consider the nature and circumstances of each transaction to determine the content and type of documents required to complete the transaction.

1Complete the client identification and verification in accordance with By-Law 7.1 of the Law Society of Upper Canada

  • Part III of By-Law 7.1, made under the Law Society Act, requires client Identification for any matter opened. Further identification and verification will often be required for both purchasers and vendors. (See the link to By-Law 7.1 in the Resources section of this How-To Brief.)

2Review the purchase agreement and prepare the closing agenda

  • As soon as the purchase agreement is signed, prepare the closing agenda.
  • Review the purchase agreement carefully.
  • Identify events that will occur or the documents to be delivered.
  • Identify the dates of events or deliveries.
  • Identify the responsibility for preparation of documents.
  • Identify the number of copies to prepare and deliver.
  • Forward the draft closing agenda to other side of the transaction promptly.
  • Review the draft of the closing agenda promptly once received.
  • Preparation of the closing agenda will identify inconsistencies, errors or timing issues, which should be settled immediately when they are unlikely to be contentious.
  • The closing agenda should be updated and monitored throughout the commercial transaction.

3Prepare documents and respond to documents delivered in a timely manner

  • Since these documents are not standard, they may require information to be gathered and reviewed in a comprehensive manner. This is not "at the earliest opportunity" as it would be in a residential transaction.
  • Let the closing agenda be a guide, and try to meet or exceed every date specified.
  • Identify problematic or unusual documents early and provide a draft of them earlier if appropriate.
  • Provide the document registration agreement after the conditional date to facilitate the electronic registration of documents.

 

 

4Gather the information

  1. Title search

    Order your title search on behalf of the buyer(s) and review for the following issues:
    • Planning Act  
    • ownership (have all the owners executed the agreement of purchase and sale)
    • registry/land titles non-conversion
    • road access/environmental protection/other agreements
    • existing encumbrances:
      • When you act for the seller(s), the clients may not know their line of credit is registered against their house, and this may affect the mortgage instructions.
       
    Even if not required by any of the parties, you should have a deleted instruments search to help flag any mortgage fraud issues.
  2. Other information

    • Personal Property Security Act (PPSA) searches, if applicable
    • execution certificates for the seller(s) and the buyer(s)
    • discharge statement for any mortgage that will be paid out and removed from title on behalf of the seller(s).
    • property tax information
    • property insurance information
    • title insurance coverage options
    • building and zoning compliance letters
    • environmental searches or reports
    • information regarding any potential change of future use of the property (confirm if the purchaser is relying on your opinion in this respect)
     
  3. Corporate parties

    In addition to the above, you will want to obtain
    • a certificate of status
    • an incumbency certificate
    • confirmation of authority to borrow/lend
    • authority of the person giving direction to bind the corporation
    • a letter of opinion from the corporate solicitor

 

5Identify the role, if any, that title insurers and lenders will play in the transaction

 

  • Identify the role, if any, that title insurance or financing will play in the transaction.
  • Review the title insurance commitment and/or loan agreement terms. 
    • Either will introduce third-party requirements to closing deliveries.
    • Either may request additional documentation that could vary parties' responsibilities.
     
  • Identify matters that may be solved by title insurance coverage such as gap coverage, minor deficiencies, etc.

6Organize the payment and receipt of closing funds

  • Complete further client identification and verification under Part III of By-Law 7.1, if required.
  • Consider the advantages of using the Large Value Transfer System (LVTS) to wire closing funds.
  • Ascertain at an early stage the impact of availability of funds from the lenders.
  • Prepare and use some or all of the following documents:
    • statement of adjustments
    • vendor's undertaking to readjust
    • purchaser's undertaking to readjust
    • direction re: funds
    • redirection re: funds
    • receipt for payment of closing funds
     

7Complete conveyancing and related documents

  • Consider and use some or all of the following conveyancing documents:
    • Transfer/Deed
    • assignment and assumption of leases
    • tenant estoppel certificate
    • vendor's notice and direction to tenants
    • bill of sale
    • vendor's PPSA letter
    • assignment and assumption of contracts
    • purchaser's assumption of specific agreements
    • third-party required consents
    • assignment of rights and warranties
    • assignment and assumption of encumbrances
     

8Complete common general closing documents

  • Consider and use some or all of the following general closing documents:
    • statutory declaration re: possession, rights and other matters
    • statutory declaration re: s. 116 of Income Tax Act (Canada)
    • purchaser's HST certificate and indemnity
    • vendor's bring down certificate
    • purchaser's bring down certificate
    • certificate of an officer of vendor attaching resolution of vendor approving and authorizing sale
    • certificate of an officer of purchaser attaching resolution of rurchaser approving and authorizing purchase
    • certificate of incumbency
    • Bulk Sales Act affidavit
    • (retail) tax clearance certificate
    • transfer keys (or other means of access)
     

9Solve problems with closing documents

  • Consider the use of some or all of the following documents to deal with closing issues:
    • vendor's undertaking re: outstanding matter
    • solicitor's undertaking re: discharge of mortgages
    • holdback agreement
    • non-merger agreement
     

10Other specific closing documents

  • Consider the use of some or all of the following documents for some circumstances:
    • realty tax agreement
    • restrictive covenant in favour of vendor
    • reliance letter re: environmental reports
     
  • Ensure compliance with the Bulk Sales Act.

11Conduct the file

  • As emphasized under the second and third categories, above, these files are to be conducted in a courteous, positive and timely manner.
  • Even if the closing does not proceed due to a contentious issue between clients, your clients' rights will be better protected if there are a minimum number of collateral issues or problems.
  • This approach should extend to messaging documents and providing comments on documents in electronic form in a timely fashion.

Statutes and Rules