ExamPassSelling a business in Ontario real estate
Under TRESA, a business is real estate, so any registered salesperson may trade in one. When a registrant negotiates the sale for the seller, the buyer must receive three statements signed for the seller before a binding agreement: a profit and loss statement, a statement of assets and liabilities, and a list of everything not included. A seller's sworn statement can replace the two financial statements, but never the exclusion list. Then come the business issues: share or asset sale, the lease, any franchise or licence, staff, inventory and adjustments.
Business trades are a small part of Course 4 but a reliable source of exam questions, and Simulation 2 uses them to test where your role ends. The statements rule is tested most, because the wording is precise and the course summary is slightly broader than the regulation.
Is selling a business a trade in real estate under TRESA?
Yes. TRESA defines "real estate" to include leasehold interests and businesses, whether with or without premises, and fixtures, stock-in-trade and goods connected with the operation of a business (TRESA, s. 1(1)). Listing a bakery is a trade, and every TRESA duty applies.
No extra certification is required, but competence is: a registrant must demonstrate reasonable knowledge, skill, judgment and competence (Code of Ethics, O. Reg. 365/22, s. 9(1)), so a first business file goes to your broker of record or a colleague who knows the work. For an overview of the Act, see our TRESA exam prep guide.
What statements must the buyer receive before the agreement binds?
If a registrant negotiates the purchase on behalf of the seller, the registrant must provide the buyer, before a binding agreement of purchase and sale is entered into, these statements signed by or on behalf of the seller (O. Reg. 567/05, s. 21(2)):
| Statement | Contents |
|---|---|
| 1. Profit and loss | For the preceding 12 months, or since the seller acquired the business |
| 2. Assets and liabilities | A statement of the business's assets and liabilities |
| 3. Exclusions | Every fixture, good, chattel, other asset and right connected with the business that is not included in the trade |
The timing is before the agreement binds, not on closing, and the seller signs them; the salesperson never prepares the seller's financials. Twelve months is the legal minimum; lenders expect three or more years.
What happens if the exclusion list is missing?
The course puts it simply: without the list, everything is treated as included. The regulation is narrower. An item is deemed included only if the exclusion statement was not provided and the agreement does not expressly deal with whether that item is included (O. Reg. 567/05, s. 21(3)). Either way, the exclusion list protects the seller. A seller who wants to keep the antique display case must list it.
Good practice is one schedule listing what is included and excluded, owned or leased. A leased espresso machine belongs to the lessor, not the seller.
How does the sworn statement alternative work?
Some sellers cannot produce financial statements, so the regulation allows a substitute. Paragraphs 1 and 2 of s. 21(2) do not apply if the buyer signs and delivers to the registrant a statement that the buyer has received and read the seller's statement under oath or affirmation (O. Reg. 567/05, s. 21(4)). The sworn statement sets out:
- the terms on which the seller holds possession of the premises;
- the terms on which the seller has sublet any part of the premises;
- all liabilities of the business; and
- whether the seller made the books of account available for inspection, refused, or has none.
The sworn statement replaces only the profit and loss statement and the assets and liabilities statement. The exclusion list in paragraph 3 is still required. By signing, the buyer gives up the two financial statements, so the accountant should be comfortable first.
Is it a share sale or an asset sale?
| Asset sale | Share sale | |
|---|---|---|
| What moves | Chosen assets: equipment, inventory, name, goodwill, the lease by assignment | The shares of the corporation that owns the business |
| Liabilities | Buyer generally does not take existing debts unless it agrees to | Buyer takes the corporation with all its assets and liabilities |
| Who can sell this way | Any owner | Only a corporation's shareholders |
A sole proprietorship or partnership has no shares, so only its assets (or partnership interests) can be sold. A partnership is a relation between persons carrying on business in common, distinct from an incorporated company (Partnerships Act, s. 2). The structure changes tax results for both sides, so the parties choose it on their accountants' and lawyers' advice.
HST can differ too. On an asset sale where the buyer acquires all or substantially all of the property needed to carry on the business, the parties may make a joint election so that no tax is payable on most of the supplies (Excise Tax Act, s. 167(1), (1.1)). It is not available where the seller is registered and the buyer is not. See our guide to HST on commercial real estate.
What about the lease, the franchise and the licences?
The lease. Goodwill is earned at the location, so the remaining term caps the time to recover the price. Collect every lease and check whether the lease can be assigned and on what terms, whether a renewal option is personal to the seller, and whether a redevelopment or early-termination clause exists. A covenant against assigning without consent is deemed subject to a proviso that consent may not be unreasonably withheld, unless the lease expressly says otherwise (Commercial Tenancies Act, s. 23(1)). If little term remains, make the offer conditional on the landlord's extension. Our net vs gross lease guide covers how the rent itself is read.
The franchise. If the buyer will sign a new franchise agreement, the franchisor must provide a disclosure document that the buyer receives at least 14 days before the earlier of signing any agreement relating to the franchise and paying the franchisor any consideration (Arthur Wishart Act (Franchise Disclosure), 2000, s. 5(1)). Recommend a franchise lawyer.
Licences. A liquor licence does not pass with the keys. After a prescribed change of ownership, no one may carry on the business under the licence unless the Registrar transfers it (Liquor Licence and Control Act, 2019, s. 14). Make the offer conditional on the transfer and check municipal business licences separately.
What happens to the staff, the inventory and the adjustments?
Staff. If a buyer employs the seller's employee, the employment is deemed not terminated, and service with the seller counts as service with the buyer (Employment Standards Act, 2000, s. 9(1)). That does not apply if the buyer hires the person more than 13 weeks after the earlier of their last day with the seller and the day of the sale (s. 9(2)). A buyer who wants fewer staff makes the offer conditional on the seller terminating named employees before closing, at the seller's cost.
Inventory. Counted at closing and valued at cost as shown by the seller's invoices, not retail. It is often paid separately from the price.
Adjustments. Receivables taken over and payables assumed adjust the price.
A worked example: a bakery in Orillia
Daniel Mwangi agrees to buy the assets of Lakeshore Crumb Bakery Inc. in Orillia for $260,000 plus inventory. He paid a $15,000 deposit, and the seller takes back $80,000.
| Step | Calculation | Result |
|---|---|---|
| Price less deposit and take-back | $260,000 − $15,000 − $80,000 | $165,000 |
| Inventory at invoiced cost (retail would be $19,800) | Counted at closing | $11,400 |
| Cash due on closing, before other adjustments | $165,000 + $11,400 | $176,400 |
The seller kept no financial records past six months, so it offered a sworn statement. Daniel's salesperson, Hana Lindqvist, explained that it would replace only the two financial statements, that the exclusion list was still required, and that Daniel's accountant should review the books first. The head baker, with nine years' service, stays on, and her service carries over to Daniel.
Which professionals should the client see?
Valuation, tax and legal effect are not your work. You must make best efforts to ensure your representations are accurate and not misleading (Code of Ethics, s. 5), so never vouch for the seller's figures, and advise clients to get services you cannot competently provide (s. 11(1)).
- Accountant or business valuator: the statements, normalized earnings, the price, tax on a share or asset sale, the HST election.
- Lawyer: structure, the agreement, lease assignment, employees, liens.
- Franchise lawyer: the franchise agreement and disclosure.
- Lender: lending on goodwill is limited; a seller take-back may fill the gap.
Frequently asked questions
Does a salesperson need special registration to sell a business in Ontario? No. Any registered salesperson may trade in businesses through their brokerage, but must be competent to do so or get help.
When must the business statements be delivered? Before a binding agreement of purchase and sale, signed by or for the seller (O. Reg. 567/05, s. 21(2)).
Does the sworn statement replace the list of excluded items? No. It replaces only the profit and loss statement and the statement of assets and liabilities.
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