Risk of loss clause

The question arises in the gap between signing and closing, when a fire, flood or theft can hit inventory or equipment that has been sold but not yet handed over. The agreement can say who bears that loss. See what happens between the LOI and closing and the split signing and closing entry.

The default rule in three provinces

Ontario’s Sale of Goods Act (section 21), British Columbia’s (section 25) and Alberta’s (section 22) each say that, unless otherwise agreed, the goods remain at the seller’s risk until the property in them is transferred to the buyer, and are then at the buyer’s risk whether or not delivery has been made, except that if delivery has been delayed through the fault of either party, the goods are at that party’s risk as regards any loss that might not have occurred but for that fault. Each section also says nothing in it affects the duties or liabilities of either party as a bailee of the other party’s goods. Each Act deals with goods. A share sale, or a sale of the business as a whole, may call for the agreement itself to say who bears a loss. For other provinces, check that province’s Act.

What to ask

• Does the agreement say who bears loss before closing, or does it leave the default to apply?
• Whose insurance covers the assets during the gap, and is the other party named on the policy?
• Can the buyer decline to close, or adjust the price, if a significant loss happens?