Which offer conditions protect a buyer of a business?

A condition lets a buyer walk away, or renegotiate, if a named event does not happen by a stated date. Several are worth considering, and each should say what must happen, by when, who can waive it and what happens to any deposit. Your lawyer should draft the wording against the structure of the deal.

Financing and due diligence

A financing condition ties closing to lender approval. BDC’s page on its business purchase loan lists a clear transaction structure, asset purchase or share purchase, among the things to make sure of before you apply, so settle the structure before you rely on that condition. A due diligence condition gives you time to review financial records, contracts, leases and licences. Name the review period and the standard, such as satisfaction in the buyer’s sole discretion or against stated findings.

Landlord consent

If the business depends on its premises, make an assignment of the lease, or a new lease on acceptable terms, a condition. In Ontario, s.23 of the Commercial Tenancies Act addresses consent to assignment. In Quebec, articles 1870 and 1871 of the Civil Code require the lessor’s consent and say it may not be refused without a serious reason.

Government approvals and clearances

Some deals need approval before they can close. Under Competition Act s.114(1), the parties to a proposed transaction must notify the Commissioner before it is completed if the transaction meets the Act’s thresholds, and s.123(1) bars completion until 30 days after the Commissioner receives the prescribed information, or any additional information required under s.114(2), subject to s.123(2). Under the Investment Canada Act, s.16(1) says a non-Canadian shall not implement a reviewable investment unless it has been reviewed and the Minister is satisfied, or deemed satisfied, that it is likely to be of net benefit to Canada, subject to the exceptions in s.16(2). In Saskatchewan, the WCB recommends that an asset purchaser obtain a clearance certificate before releasing final payment to the seller.

To see how conditions play out after the offer, read what happens between the LOI and closing.