A Guide to Commercial Real Estate Purchase Agreements In Ontario

A commercial real estate purchase agreement (often called an Agreement of Purchase and Sale, or APS) is a legally enforceable contract between a buyer and a seller outlining the terms of a sale of commercial property. In Ontario, this written contract sets out all the key details – price, timing, conditions and obligations – that the parties have agreed on. Using a formal purchase agreement is essential: it protects both sides and makes the deal enforceable in court. Even though residential and commercial sales use similar legal principles, commercial deals often involve more negotiation and tailored terms (for example, environmental reviews, zoning compliance, and larger deposits). In plain language, a purchase agreement spells out who is buying what, for how much, and under what conditions, so that everyone knows their rights and duties.

Who Should Use a Commercial Real Estate Purchase Agreement?

Any buyer or seller involved in a commercial real estate transaction in Ontario should use a written purchase agreement to govern the sale. Whether the buyer is a corporation, partnership or individual investor, a formal agreement is crucial. The written agreement is a legal document and will protect both the buyer and seller. In other words, if you’re planning to buy or sell a commercial building or land, you need an Agreement of Purchase and Sale. It ensures that the deal won’t suddenly fall apart or change terms unexpectedly, and it lets a court enforce the promises if someone breaks the deal. Without a written agreement, the deal would lack clear proof of its terms and could lead to costly legal disputes.

Key Clauses In The Commercial Real Estate Purchase Agreement

A commercial purchase agreement typically contains dozens of clauses covering the full deal terms. Broadly speaking, it will include information about the purchase price, deposit, closing date, any conditions or contingencies, and what exactly is being sold (title, included fixtures, etc.), among many other items. In fact, standard APS forms (such as those used in Ontario) list items like “Purchase price including taxes,” “Deposit amount,” “Terms and conditions of sale,” “Fixtures, appliances, and other accessories included,” as well as deadlines for accepting the offer and paying deposits. Below we explain the most important clauses in plain language.

Purchase Price

The purchase price clause states how much the buyer will pay for the property, and often how the payment will be made. The price is usually given as a fixed number (for example, $2,000,000) plus any applicable taxes. In commercial deals, the agreement might specify whether the price includes or excludes HST. It may also say how the purchase price will be adjusted for items like assumed debts or prepaid expenses. In simple terms, this clause confirms the exact amount the buyer must pay on closing, and in what form (cash, certified cheque, financing funds, etc.).

Deposit

Most agreements require the buyer to deliver a deposit when their offer is accepted. The deposit (often 5–10% of the purchase price) is usually paid into trust (by the seller’s lawyer or real estate brokerage) and credited towards the price at closing. Including a deposit shows the buyer is serious.

 

Failing to pay the deposit on time is a breach of contract. Importantly, not paying or increasing the deposit does not automatically cancel the deal. 

 

For example, in Beckett v. Ahmed (2023 ONSC 6993 (CanLII), buyers who failed to deliver the promised deposit still had a valid sale agreement. The court held that the contract was binding once the seller signed the offer, so the deposit shortfall simply made the buyer in breach. In that case, the seller mitigated by selling to a new buyer for $70,000 less than the original price, and the defaulting buyer was ordered to pay that difference as damages. In short, the deposit is treated as part of the purchase price – if the buyer backs out without legal justification, the seller generally keeps the deposit (and can also claim additional losses).

Irrevocability Period

An irrevocability clause (or “time of the essence”) specifies how long the buyer’s offer remains open before it lapses. In practice, when a buyer makes an offer, they will give the seller a deadline (date and time) to sign. During that period the buyer cannot withdraw the offer. If the seller does not accept (or counters) by the deadline, the offer expires and is of no further effect. Once the seller signs within the irrevocable period, the agreement is formed and binding on both parties (subject to any conditions).

Closing / Completion

The closing date (or completion date) is when the transaction actually closes and title passes to the buyer. The agreement will fix this date and specify what must happen on closing. Typically, the buyer must pay the balance of the purchase price (minus the deposit) and the seller must deliver a clean deed transferring title, along with any keys or documents (like leases, warranties, or maintenance manuals). The contract may require a lawyer to arrange adjustments for property taxes, utility bills, prepaid rents, etc., so that each party pays or receives the appropriate share up to closing. 

Conditions / Contingencies

Conditions (or “subject to” clauses) give the buyer (or sometimes seller) the right to cancel the deal if certain events occur (or fail to occur) by specified dates. Common conditions protect the buyer’s interests during the pre-closing period. Examples include a financing condition (if the buyer cannot obtain a mortgage, they can back out), an inspection or due diligence condition (to check environmental, structural or legal issues), and a title condition (ensuring clear title). These are often written as: “The Buyer shall have until [date] to satisfy or waive these conditions.”

 

For instance, environmental due diligence is critical in commercial deals. Ontario’s Environmental Protection Act may require site assessments for contamination. For example, the purchase agreement might provide that the sale is subject to a satisfactory phase one environmental report, or permit the buyer to negotiate for remediation or a price holdback in the event of problems. If one of the conditions is not met (and not waived) by the date specified, the buyer can cancel the agreement and get back their deposit. This means that the sale is not firm until the conditions are met or waived. However, once conditions are satisfied (or waived) by the deadline, the contract “becomes firm” and binding.

Title / Ownership

A key clause addresses title. The seller guarantees they can transfer good, marketable title to the property. The agreement will identify the legal description of the land or building (often by reference plan or PIN) and say the seller must convey all their interest free of undisclosed liens, unless specifically permitted. Buyers’ lawyers then do a title search to confirm this. If title issues are found (like an unregistered mortgage or building permit problem), the buyer may insist on resolution or back out if a title condition was included. Many commercial buyers purchase title insurance as well to protect against hidden title defects or registration errors. In practice, the title clause protects the buyer by requiring the seller to either clear defects before closing or indemnify the buyer against any unknown claims.

Included Chattels / Fixtures

The agreement must spell out what personal property and fixtures stay with the building. In the context of real estate, a fixture is an object permanently installed in the land or building, whereas a chattel is a movable object. The law presumes that fixtures become part of the land in a sale of land, unless the contract of sale otherwise provides. Examples of fixtures include built-in lighting, plumbing fixtures, and wall-to-wall carpeting. By contrast, freestanding equipment or furniture (like movable shelving, certain signage, or electronics) are chattels and do not automatically transfer unless the agreement explicitly lists them. The purchase contract should include a schedule or clause listing each included fixture (lighting, HVAC units, kitchen appliances built in, etc.) and often a separate list of chattels that are included. This avoids confusion about who owns what. 

HST and Taxes

In Ontario, commercial real estate sales are generally subject to HST (Harmonized Sales Tax) unless an exemption applies. Under federal GST/HST rules, any sale of commercial property by a non-resident seller or by a GST registrant is a taxable supply at 13% in Ontario. The purchase agreement should state whether the price is “plus HST” and which party is responsible for the tax. Often the buyer pays HST to the seller (or the buyer self-assesses it if they are a registrant). For example, a clause might say: “The Buyer shall pay HST on the purchase price as required by law.” 

Remedies (Breach of Contract)

The remedies clause describes what happens if one side breaches the agreement. The most important remedy in Ontario real estate sales is the deposit forfeiture plus damages to the injured party. If the buyer fails to close without legal excuse, the seller typically keeps the deposit as liquidated or security damages. The seller can also sue for any additional losses (for example, if they re-sell for less than the original price). 

 

In the event that the seller breaches the contract, the primary remedy available to the buyer is the refund of the deposit and the cancellation of the contract. A clause may also provide the buyer with the option to sue the seller for damages, such as financing and inspection costs. However, in the event that the seller unreasonably backs out, the buyer gets the deposit back and may sue the seller for the costs. The parties may also agree to specific performance (forcing the sale to close), but that remedy is discretionary and not automatic. 

Warranties and Representations

This section of the agreement sets out certain assurances each party makes. The seller’s representations often include statements that the seller legally owns the property, that there are no undisclosed liens or encumbrances, that the property complies with laws (building code, zoning, fire safety, etc.), and that no lawsuits affect it. The buyer may claim to be a legitimate legal entity and have the capacity to effect the purchase. 

Dispute Resolution

Finally, many agreements include a dispute resolution clause. This specifies how any contract disputes will be resolved – by litigation in court, arbitration, mediation, or some combination. In Ontario, if nothing special is agreed, disputes go to court under the Lawsuit Form of action. But parties often prefer arbitration or mediation for faster resolution. The agreement may say, for example, “Any dispute arising under this APS shall be resolved by arbitration under the Arbitration Act, 1991 (Ontario), and judgment on the arbitrator’s award may be entered in any court.” If no clause exists, a default dispute will be handled in the Ontario Superior Court by the normal civil procedure rules.

How Binding Is The Agreement?

Once the agreement is signed by both buyer and seller, it is a binding contract that “cannot be broken unless both parties mutually agree”. In practical terms, this means that after both signatures, the parties are obligated to complete the sale according to the contract terms. Before that point, however, the agreement is subject to the seller’s acceptance. As noted above, the seller typically has an irrevocability period (e.g. 24–72 hours) to sign the buyer’s offer. During that period, the buyer may not withdraw the offer, but the seller is free to accept, reject or counter. If the seller does not sign by the deadline, the offer lapses and there is no contract. Likewise, if the seller counters or changes the terms, the original offer is void and a new agreement must be signed. In short, the contract only becomes binding when both sides have signed it. Once it is signed, however, the obligations become legally enforceable – the buyer must proceed to close (subject to any satisfied conditions) and the seller must convey the property as promised.

How Long Is An Offer Valid?

The buyer’s offer in Ontario will include an offer expiry or irrevocability date/time. This is the deadline by which the seller must respond. Typically, it ranges from a few hours to a few days after the offer is made. During this period, the buyer cannot retract the offer, and the seller has an opportunity to sign (accept), reject or counter. In case the seller fails to sign or reject the offer before the expiration date, the offer is automatically void. An example of such a statement is: “This offer shall expire at 5:00 p.m. on [date], if not accepted by the seller by that time, when it shall be null and void.” In any case, once the seller signs the deal before it expires, it is binding. The practical result is that an offer only remains open as long as the stated irrevocable period; beyond that, either party can walk away.

What Is Involved In The Purchase And Sale?

Commercial real estate transactions typically follow several stages. Often the process begins with a Letter of Intent (LOI) or Term Sheet. These preliminary documents (usually non-binding) outline the major deal points – such as purchase price, deposit amount, closing timeline and key conditions. They help the parties reach broad agreement before spending time on a detailed contract. As one source explains, parties often start with an LOI listing the purchase price, deposit structure, and deadlines for due diligence.

 

Once major terms are agreed, lawyers negotiate and finalize the formal Agreement of Purchase and Sale. This is where all the clauses discussed above are drafted. The final APS will spell out the exact asset(s) being sold (land, building, equipment), include schedules of included items, set out all conditions, and fix closing details. For example, the lawyers will clarify what chattels and fixtures go with the sale, any tenant lease issues, and any reimbursements for prepaid rents or deposits.

 

After the agreement is signed, the due diligence period begins (if there are conditions). The buyer’s team will conduct surveys, title searches, environmental and building inspections, and any other reviews. During this time the buyer can discover issues and either waive conditions, negotiate remedies, or cancel the deal. For instance, if a Phase I environmental report reveals potential contamination, the parties might agree that the seller must remediate before closing or adjust the price accordingly. Financing is also arranged in this period: the buyer secures a mortgage or loan, often requiring an appraisal. The lender’s conditions (appraisal, insurance, final approval) may become part of the deal or an additional condition to satisfy.

 

Once all conditions are satisfied or waived, the transaction becomes firm. Both sides then prepare to close. The buyer’s lawyer will arrange for a new title search and tax certificates to verify that no new liens or tax arrears have been incurred. They may also arrange for new condo status certificates, as necessary, and verify that the rent rolls and leases are as expected. At the same time, the seller’s lawyer will arrange for payment of outstanding mortgages, prepare a deed or transfer document, and draft a closing document showing adjustments for taxes, utilities, and any prepaid or outstanding rents. On the closing date, these steps are completed at the same time, with payment of purchase price funds by the buyer (net of deposit), transfer of legal title by seller, and keys/documents being exchanged. 

Case Laws

Ontario courts have addressed many disputes over purchase agreements. For example, in 1854329 Ontario Inc. v. Cairo (2022 ONCA 744), the Ontario Court of Appeal dealt with a defaulted commercial sale. The buyer had paid a 5.5% deposit and later failed to close. The court upheld the seller’s right to keep the entire $400,000 deposit, finding that amount was not unconscionable or a penalty. This confirms that sizeable deposits are enforceable when a buyer backs out of a firm agreement.

 

Another case, Beckett v. Ahmed (2023 ONSC 6993), involved a buyer who never delivered the promised deposit. The court found a binding agreement of purchase and sale existed once the seller signed. The failure of the buyer to make the payment does not invalidate the contract. Instead, it makes the buyer liable for the breach. The seller sold the property at a price that is $70,000 less than the purchase price and successfully sued the buyer for the difference. This supports the fact that the Ontario courts consider a real estate APS as binding on signing, and the terms regarding the payment of the deposit are part of it.

Conclusion

The purchase agreement for a commercial property in Ontario is a detailed legal document that outlines all the aspects of the sale and purchase of a commercial property. It includes the terms of the sale, the price, the manner of payment, the management of the deposit, conditions such as financing and inspections, the inclusion and exclusion of chattels and fixtures, taxes, and remedies for breaches. The document is binding once both parties have signed it, and neither party has the right to withdraw from the contract without consequences. Therefore, it is important for buyers and sellers to go through all the clauses of the document. Some important aspects to watch out for include the irrevocability period for the offer, the consequences of the conditions not being met, and the inclusion and exclusion of chattels and fixtures. 

 

Ontario case law emphasizes that courts will honour the written agreement. 

 

For instance, if a buyer defaults on the purchase, the buyer loses the deposit, and if the seller cannot provide clear title to the property, the seller must refund the deposits. A professional agreement of purchase and sale can assist in avoiding such situations. It is always advisable to consult a seasoned attorney for the drafting or review of the agreement of purchase and sale. This will ensure that the agreement of purchase and sale accurately reflects the intentions of the parties, complies with the law, including HST and Land Transfer Tax considerations, and provides clear remedies for the parties. This way, the buyer and the seller can confidently enter into the agreement of purchase and sale as each clause is clearly understandable, ensuring a legal and ethical commercial deal.