(Ontario Real Estate Source)
By Brian Madigan LL.B.
Don’t Sell the Minivan By Mistake!
Ordinarily, one would think that chattels are not included in an agreement of purchase and sale concerning real estate. And, most of the time they would be right.
However, this is not the case when we are talking about the sale of a business.
Under the Real Estate and Business Brokers Act, 2002 the term “real estate” is defined to include real property, leasehold and business whether with or without premises, fixtures, stock-in-trade, goods or chattels in connection with the operation of the business.
Bob operated a small electrical contracting company. After 25 years in the business, he felt that it was time to retire. In addition to the 10 trucks all clearly marked “Bob’s Electric”, he had recently purchased a minivan. Bob used this vehicle to get to work. He acquired it right at the end of the year so that he could maximize the depreciation. Bob listed the business and negotiated an excellent price.
You might imagine his surprise when it came to the day of closing and his lawyer had prepared a Transfer of the minivan for him to sign. Bob said it was not part of the deal. There was nothing about the minivan in the agreement of purchase and sale. This was true!
His lawyer reviewed the agreement and said that the definition of “real estate” when it concerned the sale of a business included chattels. Since the minivan had been acquired and used in connection with the business, no matter how remote this connection might be, the minivan was deemed to be part of the deal. The obligation rested upon Bob to clearly exclude it, if that was his intention. It did not have to be written into the agreement to become part of the deal. Silence meant the minivan was part of the deal.
So, on closing the purchaser received an assignment of the lease, the stock-in-trade, the fixtures, the 10 trucks, and to his surprise, Bob’s brand new minivan that he drove to work.
In addition, there is one more little problem here worth mentioning. Bob was attracted to the minivan because of the zero percent financing spread out over five years. You guessed it! The agreement of purchase and sale conveyed the title to the assets “free and clear of all encumbrances”. So, out of the funds due on closing, Bob had to pay off the loan on the minivan in order that the purchaser would get clear title.
This little glitch arises in many business transactions, but most of the time neither the buyer nor the seller are aware, and no one asks about the minivan that the owner uses to get to work. There was some good news however. Bob had been thinking about buying a Mercedes.
Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com
