By Brian Madigan LL.B.
Many business owners like to keep information as confidential as possible. And, this particularly applies to their finances and their books.
So, what is the minimum that they can get away with?
Let’s have a look at s. 21(4) of Regulation 567/05 under the Real Estate and Business Brokers Act, 2002:
(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.
Paragraphs 1 and 2 dealt with the financial statements, namely the profit and loss (income and expenses) and the balance sheet (assets and liabilities).
Therefore, we can assume that those documents are not available. So, what must you provide to the purchaser under all circumstances?
The minimum documents are:
•· The lease, or whatever document(s) might exist in lieu of the lease
•· Any sublets provided
•· All liabilities of the business
•· A statement concerning the financial operations
Now, when it comes to the financial statements, the person disposing of the business, and this could be either the owner, a secured creditor, an unsecured creditor or other party, must state the following:
•· The books of account have been available for inspection
•· The books of account are not available for inspection
•· There are no books of account
However, that is not the end of it. The purchaser must sign an Acknowledgment confirming that he has received and read the appropriate statements.
Assuming that items 1 and 2 are omitted, then that still leaves us with 3 and 4 setting out the liabilities and the financial reference statement.
The disposing party’s document must be sworn under oath, and it must be delivered to the purchaser before the agreement becomes “binding”.
In order to be on the “safe side”, listing brokerages are cautioned to include a clause to the effect that the agreement is not binding until such document has been provided. Further such a provision could be extended to include the purchaser’s statement. That will eliminate any disclosure problems that may arise.
Ordinarily, the agreement becomes “binding” upon acceptance. Creating a “legal fiction” to preclude this usual assessment would be worthwhile.
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,