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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Canada | Publication | April 28, 2020 - 12 PM ET
The purchase and sale of commercial real property in Alberta and the vendor and purchaser obligations will be governed by the provisions of the signed purchase and sale agreement. It is important to review the specific provisions of each agreement carefully. This update highlights certain issues to consider as vendors and purchasers navigate a few of the challenges they might face in the context of such transactions.
Typically, agreements of purchase and sale of commercial real property do not contain force majeure, unavoidable delay or material adverse condition clauses that might address events beyond the control of the parties to such agreements (events such as pandemics or health emergencies). Without such clauses, the provisions of an agreement of purchase and sale remain unchanged and in full force and effect during the current pandemic unless the parties to such agreements agree to amend them.
Absent any express right of termination in the agreement of purchase and sale, the agreement may be terminated only if it is conditional upon the satisfaction and/or waiver of conditions within specific timeframes. These conditions should be considered in the context of the specific transaction to determine if either party has the right to terminate the agreement as a result of non-satisfaction/non-waiver of conditions due to the current pandemic:
If any of the conditions that go to the root of the agreement, or any other such terms of the agreement, are legally or physically impossible to perform due to the current pandemic, the agreement may be frustrated. Note that the threshold for frustration of an agreement is high and the non-performance must be without fault of either party and performance must be completely impeded.
Each of the vendor and the purchaser will need to carefully consider all its respective obligations set out in the agreement of purchase and sale to determine whether it can reasonably comply with these and if not, whether it should request an extension to a specific deadline or some other type of amendment to the agreement (i.e., price modification, increased or additional deposit, vendor take-back financing, allocation of costs for title insurance, additional representations and warranties, indemnities). For any amendments, consider:
Agreements will often include a due diligence condition in favour of the purchaser. Due diligence can include a physical property inspection along with permitted testing in many instances, reviewing documents made available by the vendor either through an online database or physically at the offices of the vendor or its property manager, as well as reviewing search results obtained from governmental authorities. The vendor is often required to provide access to or copies of certain disclosure documents. Obviously, in times of social distancing and temporary closures of non-essential services, the vendor’s ability to produce disclosure documents and the purchaser’s ability to carry out its due diligence may be affected.
In some instances, the vendor or purchaser may be required to obtain or provide to the other party certain third-party deliverables, either as part of the conditions or closing. The parties should consider whether these will be available in time to permit compliance with the purchase and sale agreement. Here are some examples of third-party deliverables that may be relevant:
The closing mechanics are typically straightforward; however, the parties should consider some basic practicalities to ensure each party remains in compliance with its obligations:
Agreements of purchase and sale will not typically define specific events of default other than a party’s failure to close. In that case, it is important to determine what remedies are specified:
Certain documents will require wet-ink signatures (signed originals), including any documents that must be submitted to the Alberta land titles office and most bank financing documents. Confirm as early as possible in the process which documents will require wet-ink signatures and arrange for times when the signatories can sign and deliver them.
Some closing documents must be executed under corporate seal or be witnessed with supporting affidavits sworn. Ministerial order No. SA:008/2020 was issued and modifies the attestation requirements to permit two-way video conferencing for affidavits. The wording of affidavits will need to be modified to allow for this. Please click here for a copy of the ministerial order, which includes a sample of the required wording.
Title insurance may be a suitable option to address certain matters, such as any registration gap, encroachment issues, the lack of a real property report or missing or unavailable government responses regarding due diligence. Note that most title insurers will require at a minimum a title search that is less than 30 days old.
Request third-party documents as early as possible and follow up often.
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Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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