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Consumer Guide to Sale of a Business

Consumer Guide to Sale of a Business

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This FAQ outlines when a business sale is not a real estate transaction and when you may need a real estate license to facilitate such a transaction under the Real Estate Services Act.

Commercial real estate clients tend to be savvy. Odds are you have engaged in numerous transactions in the past and may not require the same level of service as a residential purchaser or seller. But, when it comes to the sale of a business, some types of transactions are not even considered real estate transactions and are not governed under the Real Estate Services Act.

When is a business sale not a real estate transaction?

There are three times when a business sale is not considered to be a real estate transaction:

  • When a company is sold as an asset sale and there is no real estate component, it is not considered a trade in real estate. This can happen when the company being sold has no lease or sale of a property included. The sale would only include such items as furniture, office equipment, signage, the company name, client lists etc.
  • When a company sells 100 per cent of its shares but there is no real property owned or leased by the business, a licence is not required to facilitate the transaction. In such a case, the purchase of the shares would not include any interest in real property and therefore is not considered a trade in real estate.
  • If the sale is less than 100 per cent of a company’s shares it will not be considered a real estate transaction. This includes if the company owns or is leasing real property, because only a portion of the shares are being sold.

In any of the examples cited above, you are not required to have a licensed real estate professional represent your interests in the transaction. Should you choose to use the expertise of a real estate professional, it is important to note that their conduct will not be governed under the legislation and therefore there are no protections offered to you through the Real Estate Services Act.

Deposits cannot be held by a brokerage in their statutory trust account as an impartial stakeholder because the above examples are not considered real estate transactions. The deposit will need to go into another trust account or be held by a third party as a non-stakeholder. Your purchase contract must outline where the deposit is going to be held and all parties should get legal advice to understand any risks that may arise from that choice.

Can a real estate professional provide an inventory valuation like they would a property valuation?

Real estate professionals are not trained to value inventory and are prohibited from offering services or advice outside of their area of expertise. This forms part of the requirement that they only provide you with competent service and act in your best interest.