Residential renovation contractor due diligence

Once a letter of intent is signed, the buyer of a residential renovation contractor moves from questions to proof. Where the business has little fixed property to inspect, much of the evidence sits in project files, registry records and the paperwork of its subtrades. This guide sets out which documents to ask for, which searches to run, and which findings change a deal. It is organized around those findings rather than a generic checklist, and it is general information, not a legal or accounting opinion. Your lawyer and accountant decide what your own review must include.

The open-project files

Ask for every open project: the signed contract, the deposit and payment schedule, change orders, permits, inspection records, subtrade invoices and any written complaint. Then reconcile them. Compare deposits received against the work completed to date, and against the cash the seller reports. A gap is something to explain before closing: ask where the money went and who would be responsible for finishing the work. Also compare the project list against permits pulled with the municipality, and ask the seller to explain any job with no permit where the scope seems to call for one.

Workers’ compensation standing

The rules depend on the province. In Ontario, the WSIB says that a purchaser may be held liable for all amounts owed by the vendor up to the date of sale if no valid purchase certificate is obtained, that the certificate must be requested before the date of sale, and that it is valid for 30 days from the date of issue printed on it. It also says that when shares are sold, no new legal entity is created, so a purchase certificate isn’t required. The WSIB construction clearance policy says a principal who directly retains a contractor to perform construction work must obtain a clearance confirming the contractor is in good standing, and that a clearance is valid for up to 90 calendar days, depending on the date it is issued. That policy does not apply to householders who occupy or will occupy a private residence when they (or family members) directly retain a contractor for exempt home renovation work only, nor to contractors those householders directly retain for that work, so ask which rules the company’s work falls under. Other provinces differ, and WorkplaceNL and WCB Alberta publish their own clearance rules.

Liens and security registered against assets

Run a personal property security search against the company and, in an asset purchase, against the seller. In Ontario, the Personal Property Security Registration system allows a notice of security interest or lien on personal property to be registered, and you can search it through Access Now. Look for vehicle, equipment and general security registrations, and ask what each secures. Outside Ontario, ask your lawyer which registry to search. For each registration, ask whether it will be paid out or discharged at closing. Ontario’s guidance, written for buyers of used goods, says that if a loan has been repaid, the buyer should insist that the seller require the lender to promptly register a discharge before the sale is completed.

Subtrades, licences and locates

List every subtrade the company uses and ask for proof of licence, insurance and workers’ compensation coverage for each. Where a licence is public, check it yourself. The Régie du bâtiment du Québec offers a licence holders’ repertory, and the Electrical Safety Authority states that in Ontario only electrical contractors it licenses may do electrical work for hire. For excavation work in Ontario, ask for the locate requests the company made through Ontario Dig Authority, which says each infrastructure owner will either arrange to mark its lines or confirm that its infrastructure is not affected.

Marketing claims and review records

The Competition Bureau states that under the Competition Act it is against the law to advertise or market something in a way that is false or misleading. Ask the company to show how it describes its work and how it collects and publishes reviews. Ask for the website, brochures and any guarantees or warranties the company promises, and compare them with how past projects actually ran. Ask whether any claim the company makes, such as a promised finish date, is one it can back up. Ask who controls the review accounts and whether the seller can hand over administrative access at closing.

Findings that can change a deal, and what to ask

Questions to ask about each of these findings: are there unresolved deposit or unfinished-project complaints, and can the company afford to finish that work? Is there undocumented or unpermitted structural, electrical or gas work, and who would be responsible for correcting it? Does the sales and design function leave with the owner, and is the revenue in the model tied to it? Are reviews and branding tied to the owner’s name? How to respond to any of these is a question for your lawyer and the deal team.

• Reconciliation of deposits received to work completed on every open project
• Workers’ compensation clearance or purchase certificate for the company, and clearances for subtrades
• Personal property security search results with an explanation for each registration
• Licence, insurance and coverage proof for each subtrade, checked against public registers where they exist
• Permit records and complaint history compared against the list of past projects