You’ve found a buyer. Or you’ve found the perfect business to acquire. Both sides have shaken hands, and a lawyer has drafted a purchase agreement that runs to sixty pages. Everyone signs. Champagne, right? Not quite. In almost every private merger and acquisition (“M&A”) deal in Canada, signing the agreement is not the finish line- it is the starting point. Between signing and “closing” (the day money and ownership actually change hands), a deal can still fall apart, get delayed, or need to be renegotiated. The legal mechanism that governs this in-between period is the closing conditions clause of the purchase agreement.
This guide breaks down what closing conditions are, how they work in a typical Canadian private M&A transaction, what a closing checklist looks like in practice, and the most common reasons deals get delayed at the finish line. We also look at how Canadian courts have interpreted these clauses, so you know what is really at stake if a deal goes sideways.
What Happens Between Signing and Closing?
In a straightforward transaction, the parties sign the purchase agreement and close on the very same day- money moves, shares or assets transfer, and the deal is done. But most private M&A deals of any real size cannot close immediately, because something still needs to happen first. Common examples include:
- A landlord, franchisor, or key supplier needs to consent to a change of control before their contract can continue;
- A regulator needs to approve the transaction (for example, a liquor licence transfer, a professional corporation approval, or in larger deals, a filing under the Competition Act or the Investment Canada Act);
- The buyer still needs to finalize financing with its bank or investors;
- Shareholders or the board of directors need to formally approve the transaction; or
- The parties simply need time to prepare closing documents, transfer permits, and update corporate records.
This gap, sometimes called the “interim period” can last anywhere from a few days to several months. During this window, the seller usually agrees to run the business “in the ordinary course” and not make major changes (for example, no large new contracts, no dividends, no key hires or firings) without the buyer’s consent. This promise is known as an ordinary course covenant, and it exists precisely because the buyer is paying for the business it agreed to buy on signing day, not a business that has been quietly reshaped in the weeks that followed.
The purchase agreement also sets out a list of things that must be true, or must have happened, before either party is legally obligated to close. That list is the closing conditions, and it is the subject of the rest of this article.
Conditions to closing in a Canadian Private M&A transaction
A closing condition is a contractual pre-condition- something that must be satisfied (or formally waived by the party it protects) before that party is required to close the deal. If a condition is not met and is not waived, the party it was written to protect can typically walk away without being in breach of contract.
While every deal is different, most Canadian share or asset purchase agreements build in some combination of the following conditions:
Accuracy of Representations and Warranties
The seller’s statements about the business (its financial statements, its contracts, its compliance with law, that it owns what it says it owns) must remain true, in all material respects, as of the closing date, not just as of the day the agreement was signed.
No Material Adverse Change or Material Adverse Effect
Nearly every Canadian purchase agreement includes what is known as a Material Adverse Change (“MAC”) or Material Adverse Effect (“MAE”) clause. In plain terms, it allows the buyer to walk away if something happens to the target business, between signing and closing, that is serious enough to significantly undermine what the buyer bargained for. These clauses are heavily negotiated because the bar for what counts as “material” is deliberately set high, and Canadian courts have made clear they will hold parties to the specific wording they agreed on.
Two Ontario decisions illustrate how seriously courts take this language. In Cineplex Inc v Cineworld Group plc, 2021 ONSC 8016 (CanLII), Cineworld tried to walk away from its roughly $2.8-billion agreement to acquire Cineplex, arguing that the COVID-19 pandemic had triggered the MAE clause and that Cineplex had breached its obligation to keep running the business normally. The Ontario Superior Court of Justice disagreed. Because the parties had specifically carved “outbreaks of illness” out of the MAE definition, the court held that Cineworld had assumed the risk of a pandemic when it signed the agreement, and it could not use the pandemic or Cineplex’s reasonable pandemic response as an excuse not to close. Cineworld was ordered to pay Cineplex more than $1.2 billion in damages for lost synergies.
A similar problem was encountered in Fairstone Financial Holdings Inc v Duo Bank of Canada, 2020 ONSC 7397 (CanLII). In that case, the bank sought to escape from closing the deal with Fairstone because of the adverse effect caused by the coronavirus outbreak on their business, which constituted a Material Adverse Effect. It was decided that there was a material adverse effect, although it definitely qualified as an “emergency, crisis, or natural disaster” under the agreement. This decision led to specific performance being ordered against the bank.
Regulatory and Third-Party Consents
If the transfer of the contract, lease, license or loan is not allowed unless there is a prior agreement from another party, the closing will generally be conditioned upon obtaining such consent in writing. Failure to obtain one consent out of many necessary consents may be enough to prevent a timely closing.
No Litigation or Injunction
Most agreements require that there be no lawsuit, government order, or injunction in place that seeks to block or unwind the transaction.
Delivery of Closing Documents and Corporate Approvals
Board and, where required, shareholder resolutions approving the transaction, along with officer’s certificates confirming the above conditions have been met, are almost always listed as conditions to closing in their own right.
True Conditions Precedent and the Rule Against Unilateral Waiver
Not every condition can simply be waived by the party it favours. Canadian courts distinguish between an ordinary contractual condition (which the protected party can usually waive) and what is called a “true condition precedent”- a condition depending on an external event, often outside either party’s control, on which the entire contract’s existence depends. The leading authority is the Supreme Court of Canada’s decision in Turney v Zhilka, 1959 CanLII 12 (SCC), [1959] SCR 578, a land sale case where completion was conditional on a municipality annexing the property. The Court held that because the condition depended on the will of a third party (the village council) rather than either contracting party, it was a true condition precedent that could not be unilaterally waived, even by the party it was meant to benefit. This principle still guides Canadian M&A drafting today: where a deal depends on a third-party regulatory approval, careful drafters spell out in the agreement itself- exactly who can waive what, and when, rather than leaving it to be argued about later.
The M&A closing checklist
Once the closing conditions look like they will be satisfied, the parties (usually through their lawyers) begin assembling a closing checklist- a master document tracking every deliverable, signature, and payment needed to complete the transaction. A typical Ontario private M&A closing checklist includes:
- Corporate resolutions: board and shareholder approvals of the transaction, and minutes books.
- Officer’s certificates: signed certificates stating that all representations continue to be true and all covenants have been performed.
- Third party consents/releases: landlord consents, lender payoff letters, discharges of security under the Personal Property Security Act, and releases of personal guarantees.
- Disclosure schedule updates: to reflect any changes made since signing.
- Employment issues: offer letters or transition agreements for certain employees, and outstanding payroll confirmations.
- Holdback escrow agreement: if a portion of the purchase price is being put into escrow to cover future indemnity claims.
- Tax elections and clearances: like joint election under Section 22 of the Income Tax Act in connection with the sale of assets, and confirmation of the GST/HST treatment.
- Legal opinions: by legal counsel on each side stating due authorization and enforceability of the transaction.
- Funds flow memorandum: an agreement setting out where every penny of the purchase price is going to go.
- Transfer documents: share transfer agreements and share register (if the deal is about shares), or bill of sale and assignment agreements (if the deal is about assets).
Experienced deal counsel typically starts building this checklist well before signing, so that by the time conditions are satisfied, closing is a matter of executing a well-organized plan rather than a last-minute scramble.
What Happens on the Day of Closing?
Closing day in a Canadian private deal today is usually a virtual, or “escrow,” closing rather than everyone sitting around a boardroom table. Here is what typically unfolds:
- Lawyers on both sides confirm, item by item, that every closing condition has been satisfied or formally waived.
- Final, signed versions of every closing document are exchanged and held “in escrow” by the lawyers, meaning the documents are not yet legally released or effective.
- The buyer’s funds are transferred, usually by wire, to the seller’s lawyer’s trust account (or directly to the seller, lenders, and any escrow agent, per the funds flow memorandum).
- Once funds have cleared and everyone confirms receipt, the lawyers release the documents from escrow- this moment is what actually completes the transaction.
- Share certificates or the share register are updated to reflect the buyer as the new owner (share deal), or title to the purchased assets formally transfers (asset deal).
- The minute book is updated, new officers and directors are appointed if applicable, and any final government filings (such as an Ontario corporate profile update) are made.
Because so many moving parts have to land at almost the same moment, most experienced deal teams run a final call or checklist review an hour or two before the funds move, precisely to avoid a mid-closing surprise.
Share Deal vs. Asset Deal: How closing can differ
Whether a transaction is structured as a share purchase or an asset purchase changes what closing actually involves.
Share Deals: In a share deal, the buyer purchases the shares of the target company directly from its shareholders. The company itself continues to exist, with all of its contracts, employees, licences, and liabilities intact- only the ownership changes. Closing is mechanically simpler: share certificates are transferred (or cancelled and reissued), the share register is updated, and directors and officers are typically replaced. Because the corporate entity doesn’t change, third-party contracts often continue automatically unless they contain a “change of control” clause that itself triggers a consent requirement. This is why reviewing every material contract for change-of-control language is a standard, and important, part of due diligence before closing a share deal.
Asset Deals: The purchase in an asset acquisition consists of buying out particular assets, such as equipment, inventory, contracts, intellectual property, and goodwill, and assuming only those liabilities that have been specifically named, letting the rest to stay with the existing business entity. In an asset deal, closing takes place through signing particular transfer documents, which may be different for each category of assets, including a bill of sale of equipment, assignment of contracts and leases, and an IP assignment for trademarks or patents. Asset deals also typically require GST/HST planning (often through an election to have the sale occur without tax being charged where the assets constitute a business) and careful thought about employees, since an asset sale does not automatically transfer employment relationships the way a share sale does- offers of employment, and treatment of accrued entitlements, need to be addressed as part of the closing steps.
Asset transactions are preferred by the buyer because they can select which liabilities they would assume, while the seller may opt for a stock transaction due to its simple nature and in case of an individual who sells out his or her privately held corporation of Canada, the possibility of using the lifetime capital gains exclusion. The question of what type of a transaction is appropriate should be made on a case-by-case basis, based on taxation and risks involved, and before drafting of a letter of intent.
Common issues that can delay an M&A closing
Even well-prepared deals hit turbulence between signing and closing. The most frequent causes of delay in Canadian private M&A include:
- Financing falling through or being delayed: if the buyer’s condition to closing includes securing acquisition financing, a lender’s due diligence timeline can end up dictating the whole deal’s timeline.
- Missing or delayed third-party consents: a landlord, franchisor, or key customer that is slow to respond can single-handedly hold up closing.
- Regulatory review: in larger transactions, review under the Competition Act or the Investment Canada Act can take weeks or months.
- Disputes over whether a Material Adverse Change has occurred: as the Cineplex and Fairstone decisions above show, this is one of the most heavily litigated closing issues in Canadian M&A.
- Open-ended timing obligations: deals that rely on vague language like “commercially reasonable efforts,” without a fixed date, are especially vulnerable to disputes about whether a party dragged its feet.
- Last-minute due diligence findings: newly discovered environmental, tax, or litigation issues can force renegotiation of price or terms right before closing.
- Key employee departures: losing a critical manager or founder during the interim period can itself trigger a Material Adverse Effect dispute.
A recent decision underscores how much can turn on the precise drafting of timing language. The purchase and sale agreement in the case of Nova Fish Farms Inc v Cold Ocean Salmon Inc, 2025 NLCA 28 (CanLII) provided that the “closing be conditional upon the parties’ efforts to obtain such government approvals on a commercially reasonable basis” with “no deadline being established,” even though there was a time-is-of-the-essence provision. After the buyer took over a year to even submit its regulatory applications, the seller argued it was entitled to walk away. The trial judge agreed. On appeal, the Newfoundland and Labrador Court of Appeal disagreed on that specific point: it held that a “time is of the essence” clause only bites where the agreement sets a fixed date or deadline- it cannot, on its own, convert an open-ended “reasonable efforts” obligation into a hard deadline. Because no such fixed date existed for the approvals in question, the seller could not rely on the clause to walk away, even though the buyer had genuinely dragged its feet.
This case (currently under further appeal to the Supreme Court of Canada) is a useful reminder for anyone negotiating an Ontario purchase agreement: a “time is of the essence” clause is not a substitute for actually setting firm deadlines. If timing certainty matters to you and in most deals, it does, your agreement should specify fixed dates for satisfying closing conditions and a clear outside date after which either party can walk away, rather than relying on general efforts language to do that work.
Getting to closing with confidence
Closing conditions exist to protect both sides of a deal but as the cases above show, poorly drafted or loosely understood conditions are also one of the most common sources of M&A litigation in Canada. Whether you are buying your first business, selling a company you built over decades, or navigating a mid-market acquisition, having experienced counsel review your closing conditions, build your closing checklist, and manage the interim period is necessary.
Our corporate and M&A team regularly advises Ontario business owners on structuring, negotiating, and closing private acquisitions and sales. If you are preparing to sign a purchase agreement, or you’re already in the interim period and want a second set of eyes on your closing conditions, we would be glad to help. Book an appointment with us now!
