Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
Brokerage
Independently owned and operated

96 Rexdale Blvd. 
Toronto, Ontario 


Phone: 416-745-2300
Toll Free: 1-888-507-0817

 

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Duties of Agent (Business Broker) under REBBA, 2002 (Sale of Business)

August 28, 2013 - Updated: August 28, 2013

 

Duties of Agent (Business Broker) under REBBA, 2002 (Sale of Business)

 

At the outset, it should be noted that real estate agents in Ontario are authorized to act for vendors and purchasers in the sale of businesses. In that regard, they are “business brokers”. It should be noted just to avoid the possible confusion that they might be registered as either a “sales representative” or a “broker”.

 

A business is mentioned in Regulation 567/05 passed pursuant to the Real Estate and Business Brokers Act, 2002:

 

 

ONTARIO REGULATION 567/05

GENERAL

Interpretation

 

Definitions: Act and regulations

 

1.  (1) In the Act and the regulations,

 

“sell” means dispose of or seek to dispose of an interest in real estate, and “seller” has a corresponding meaning, but “sale” does not have a corresponding meaning.

 

Definitions: this Regulation

 

2.  In this Regulation,

 

“buy” means acquire or seek to acquire an interest in real estate, and “buyer” has a corresponding meaning;

 

            Purchase of Business

 

Purchase of business: statements to be delivered

 

 21. (1) The definitions of “buy” and “buyer” in section 2 do not apply to this section.

 

(2)  If the purchase of a business is negotiated by a brokerage on behalf of the person disposing of the business, the brokerage shall provide to the purchaser, before a binding agreement of purchase and sale is entered into, the following statements signed by or on behalf of the person disposing of the business:

 

1. A profit and loss statement for the business for the preceding 12 months or since the acquisition of the business by the person disposing of it.

 

2. A statement of the assets and liabilities of the business.

 

3. A statement containing a list of all fixtures, goods, chattels, other assets and rights relating to or connected with the business that are not included in the trade.

 

(3)  If the brokerage fails to provide the statement mentioned in paragraph 3 of subsection (2) in accordance with that subsection and the agreement of purchase and sale does not expressly deal with whether a fixture, good, chattel, other asset or right relating to or connected with the business is included in the trade, the fixture, good, chattel, other asset or right shall be deemed to be included in the trade.

 

(4)  Paragraphs 1 and 2 of subsection (2) do not apply if a statement is signed by or on behalf of the purchaser and is delivered to the brokerage indicating that the purchaser has received and read a statement under oath or affirmation of the person disposing of the business that sets out the following:

 

1. The terms and conditions under which the person disposing of the business holds possession of the premises in which the business is being carried on.

 

2. The terms and conditions under which the person disposing of the business has sublet a part of the premises in which the business is being carried on.

 

3. All liabilities of the business.

 

4. A statement that the person disposing of the business has made available the books of account of the business that the person possesses for inspection by the purchaser, or that the person disposing of the business has refused to do so or has no books of account of the business, as the case may be.

 

Regulation 567/05

 

The purpose of Regulation 567/05, in part, is to address the duties, obligations and responsibilities of the real estate practitioner in respect to the sale of a business.

 

Let’s turn to the definitions. While “sell” relates back to the point of listing, the definition of “buy”, when we are talking specifically about businesses does not. The reason is to ensure that we are at a later stage in the transaction. We are not simply dealing with inquiries. Not everyone, just because they asked about a business is entitled to detailed financial and confidential information about it. This distinction will become important later.

 

Obligation to Deliver Statements

 

This is what the Regulation says:

 

“If the purchase of a business is negotiated by a brokerage on behalf of the person disposing of the business, the brokerage shall provide to the purchaser, before a binding agreement of purchase and sale is entered into, the following statements signed by or on behalf of the person disposing of the business”

 

This means that a registrant must be involved in the sale. It is the obligation of the Brokerage to provide certain financial statements. Usually, the reference in similar situations will be “registrant”. But, this particular reference seems to step matters up, slightly, to the Brokerage. Consequently, there should be an increased degree of supervision in business sales than in other real estate transactions.

 

The next condition is the reference to a “binding agreement”. Since, all agreements are indeed binding, this raises the question as to whether of not the intention here was to reference just those agreements which are no longer “conditional”.

 

In any event, the time period immediately BEFORE the binding agreement is the trigger for the provision of the statements.

 

The Statements                     

 

There are some specific statements which need to be delivered:

 

  1. A profit and loss statement for the business for the preceding 12 months or since the acquisition of the business by the person disposing of it.
  2. A statement of the assets and liabilities of the business.
  3. A statement containing a list of all fixtures, goods, chattels, other assets and rights relating to or connected with the business that are not included in the trade.

 

These particular statements are naturally designed to enable the purchaser to evaluate the business. Without them, it’s difficult to come up with a proper value or a price. Just what is the business worth? Is it making any money? Does it own anything? Does it owe anything? What’s included in the sale?

 

List of Assets, Fixtures, Chattels, Goods

 

Let’s have a look at another provision:

 

“(3)  If the brokerage fails to provide the statement mentioned in paragraph 3 of subsection (2) in accordance with that subsection and the agreement of purchase and sale does not expressly deal with whether a fixture, good, chattel, other asset or right relating to or connected with the business is included in the trade, the fixture, good, chattel, other asset or right shall be deemed to be included in the trade.”

 

 

Assuming that the brokerage has not provided the statement of assets, and also assume that there is no specific list attached to the agreement of purchase and sale confirming which assets, are included, and which assets are excluded, THEN, they are deemed to be INCLUDED.

 

Waiver of Profit and Loss and Assets and Liabilities                              

 

There is an opportunity to get around the delivery of the “p&l” (profit and loss) and the “balance sheet” (assets and liabilities) as otherwise required.

 

In this case, we would need a Waiver signed.             

 

But, you still can’t get around the statement of “what’s not included”. That statement is mandatory. And, if it’s not provided, then, the item is indeed included.

 

When it comes to waivers and inclusions, here’s what the regulation says:

 

“(4)  Paragraphs 1 and 2 of subsection (2) do not apply if a statement is signed by or on behalf of the purchaser and is delivered to the brokerage indicating that the purchaser has received and read a statement under oath or affirmation of the person disposing of the business that sets out the following:

 

1. The terms and conditions under which the person disposing of the business holds possession of the premises in which the business is being carried on.

 

2. The terms and conditions under which the person disposing of the business has sublet a part of the premises in which the business is being carried on.

 

3. All liabilities of the business.

 

4. A statement that the person disposing of the business has made available the books of account of the business that the person possesses for inspection by the purchaser, or that the person disposing of the business has refused to do so or has no books of account of the business, as the case may be.” 

 

This waiver, then, has to deal with several matters:

  1. the lease, or the deed etc.
  2. any part sublet?
  3. Liabilities (this is still an issue under the Bulk Sales Act)
  4. Books are available, books are refused to be produced or there are no books.

 

It is only afterwards, that we can proceed to the next step. You will appreciate that this effectively amounts to an “informed consent” on behalf of the purchaser.

 

It is the duty and obligation under the Act to produce and deliver the statements as required or alternatively, with full disclosure provide second tier alternative information. Clearly, this secondary or alternative procedure must be explained in detail, in order to ensure that the purchaser fully understands and appreciates the receipt of the limited documentation. That is still a duty that sits upon the vendor’s agent. Further duties would be imposed upon a real estate practitioner acting for the purchaser. These are just the ones that are owing by the listing brokerage to the purchaser.

 

The net effect is to ensure that the purchaser will know the occupancy rights, and will be able to handle the obligations set out in the Bulk Sales Act for purchasers.

 

The refusal to produce books, or the fact that there are no books whatsoever certainly should constitute a “red flag” on the part of the purchaser.

 

The Ontario Real Estate Association (OREA) has developed a Form of  Declaration and Waiver which is suitable for these purposes. It is in the form of an Affidavit by the owner.

 

It is important for the vendor’s agent to ensure that this document is executed and made available.

 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


Tagged with: sale of business duty of business broker rebba 2002 ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

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