What it takes to buy commercial property in the Greater Toronto Area

Buying commercial real estate is a different process from buying a home. The property is valued on the income it earns, lenders underwrite it differently, and the due diligence period is where deals are won or lost. This guide walks through the process in order. It is general information, not legal, tax or financial advice: your lawyer, accountant and lender confirm the specifics for your deal.

1. Decide what you are buying, and why

• Owner-occupied: your own business operates from the property. Financing is often more flexible and the numbers are judged against what you would otherwise pay in rent.
• Investment: the property is bought for its rental income and long-term value. It is judged on net operating income, the cap rate and the strength of the tenants and leases.
• Development or land: value depends on zoning, servicing and what can actually be built, so planning research comes before price.

We work across multi-family apartment buildings (5+ units), retail and commercial plazas, offices, industrial and warehouse space, gas stations and car washes, hotels and motels, farms, ICI land and lots, and businesses for sale with or without the property.

2. Financing: how lenders look at a commercial deal

• The property and the buyer are both underwritten. Lenders look at the income the property produces, the buyer's financial strength, and (for owner-occupied purchases) the strength of the operating business.
• Down payment. Conventional commercial mortgages often require roughly 25% to 35% down. Owner-occupied purchases and some insured multi-family programs can be lower. It depends on the lender, the property type and the buyer.
• Debt service coverage. Lenders generally want the property's net operating income to cover the mortgage payments with a cushion, often in the range of 1.2 to 1.3 times.
• Term and amortization. Commercial mortgages commonly run shorter terms than residential ones (often one to ten years), with amortizations often around 20 to 25 years.
• Get qualified before you offer. A commercial mortgage broker or your bank's commercial lender can pre-qualify you, so your offer carries weight and your financing condition is realistic.

3. What it costs beyond the price

• Down payment and closing adjustments (property taxes, rents and deposits are prorated at closing).
• Land transfer tax. Ontario charges it on a sliding scale, and properties in the City of Toronto also pay a municipal land transfer tax. Your lawyer calculates the exact amount.
• HST. Commercial purchases are generally subject to HST unless an exception applies, so ask your lawyer and accountant how it applies to your purchase.
• Legal fees, title insurance and a survey where needed.
• Lender costs, including the appraisal.
• Third-party reports: environmental (Phase I), building condition, and any specialist inspections the property calls for.

4. Due diligence: the checklist

• Title and survey: ownership, registered easements and encumbrances, and whether the boundaries match what you are buying.
• Zoning and permitted uses: confirm with the municipality that your intended use is permitted. Do not rely on the listing.
• Environmental: a Phase I environmental site assessment is standard, and essential for gas stations, dry cleaners, industrial and older commercial sites.
• Building condition: roof, structure, mechanical and electrical systems, fire code and accessibility compliance, and the capital repairs coming.
• Leases and tenants: the rent roll, every lease and amendment, and tenant estoppel certificates confirming rent, term and any disputes.
• Financials: two to three years of income and expense statements, taxes, utilities and maintenance. For a business, the operating statements and tax filings.
• Property taxes and assessment: current bills, and whether an assessment appeal makes sense.
• Permits, work orders and licences: open items at the municipality, and whether licences transfer to a new owner.
• Businesses for sale: lease assignability, franchise agreements, inventory, equipment lists and staff arrangements.

5. From offer to closing

1. Offer. A commercial Agreement of Purchase and Sale sets the price, deposit, conditions and closing date. It is best drafted with your lawyer.
2. Conditions. Financing, due diligence, environmental and lease review are normally written in as conditions. A conditional period of two to four weeks is common, longer for complex properties.
3. Firm. When the conditions are satisfied or waived, the deal is firm and the deposit is at risk.
4. Closing. Closing commonly falls 30 to 90 days after acceptance. Your lawyer handles title, adjustments and funds.

How we help

We start with your goals, cash-flow targets, timeline and financing, then source properties that fit, including off-market opportunities beyond the public listings feed. We coordinate with your lawyer, lender and advisors through to closing.