Does “material” have a specific meaning in a purchase agreement?

The word looks precise and is not. No single definition travels from statute to statute, and a private purchase agreement is not governed by the definition in a securities Act. The agreement either defines “material” itself or leaves a court to decide what it means in context. That is why the word deserves the same attention as the price, because it can decide when a seller’s error counts and when a buyer can refuse to close.

What statutes do with the word

Ontario’s Securities Act defines “material fact”, when used in relation to securities issued or proposed to be issued, as a fact that would reasonably be expected to have a significant effect on the market price or value of the securities (s.1(1)). That definition is framed around securities, so it does not carry into a purchase agreement on its own. The Canada Business Corporations Act uses “material contract” and “material transaction” in a different setting, a director’s or officer’s duty to disclose an interest (s.120).

What the agreement does with it

Treadstone Law notes that a material adverse change clause typically appears both as a representation that none has occurred at signing and as a closing condition that none has occurred before closing. It adds that most negotiated definitions in Canadian and Ontario deals follow a similar shape: a broad opening definition, then carve-outs for things that do not count even if they affect the business. It also says that invoking such a clause to walk away is a high bar. Read each place the word appears, in the representations, the conditions and the definitions.

Questions to put to your lawyer

• Is “material” defined, and if so, is it measured against the business as a whole?
• Is there a number or threshold attached, and who set it?
• Which events are carved out of a material adverse change?
• Does the word appear in a knowledge or disclosure qualifier, and does that change its effect?