Are closing adjustments on a commercial property purchase in Ontario different from residential?

Yes, commercial real estate transactions in Ontario typically involve a more complex statement of adjustments than residential purchases. The fundamental principles — adjusting for prepaid and outstanding items as of the closing date — are the same, but the line items and applicable rules differ.

Commercial purchases are generally subject to HST, unless the transaction qualifies as the sale of a business as a going concern and the parties file the appropriate HST elections to have the transfer treated as a tax-free supply. If HST applies, it is a significant additional cost or recovery item that affects the financial structure of the deal and may appear on the statement of adjustments or be handled separately.

Commercial adjustments may include business property taxes, rent from multiple tenants, utilities billed to tenants, security deposits, CAM (common area maintenance) reconciliations, prepaid insurance (in some structures), and outstanding tenant improvement allowances. Commercial leases add considerable complexity, and rent rolls must be carefully verified. Land transfer tax applies to commercial property just as it does to residential, calculated on the same provincial schedule. Commercial transactions often require more time to prepare and review the closing documents, and buyers should engage a lawyer experienced in commercial real estate.