Hidden Equipment Liens Nearly Sank a Hamilton Shop Purchase

The situation

Tom worked nights as a warehouse worker and Femi worked as a security guard, and between them they had spent three years saving toward something they had wanted for a long time: a small business of their own. They found it in a six-bay auto repair and detailing shop in Hamilton, run for a decade by its owner, Abena, who was retiring and ready to sell. The asking price was roughly $150,000 for the business as a going concern — the equipment, the customer list, the supplier accounts, and the lease on the shop unit.

Neither Tom nor Femi had bought a business before. They had a handshake understanding with Abena, a short letter of intent, and a target closing date about two months out. What they did not have yet was any independent verification of what, exactly, they would own once the deal closed. That is where our firm came in, retained to handle the purchase agreement and the due diligence that goes with it.

What the search found

A business purchase like this one is usually structured as an asset purchase — the buyers acquire specific assets (equipment, inventory, goodwill, the lease) rather than shares in a company. One advantage of buying assets instead of shares is that the buyer does not automatically inherit the seller's debts. But that protection only works if the buyer actually confirms which assets are free of claims before money changes hands, because a creditor's security interest in equipment can follow the equipment even after it is sold to someone else.

Ontario tracks these claims through the Personal Property Security Act (PPSA) registry, a public database where lenders and suppliers register a security interest — a legal claim against specific property, usually because they financed its purchase or are owed money for it — so that anyone searching later can see who might have a claim on it. Our office ran PPSA searches against the business and against Abena personally before drafting the closing documents.

Two registrations came back. The first was from an equipment finance company, showing a lien of roughly $38,000 against two hydraulic vehicle lifts and a diagnostic scanning system — equipment Abena had financed several years earlier and had not fully paid off. The second was from an auto parts supplier, registered for about $9,000 in unpaid invoices, secured against shop inventory and tools. Together, the liens totalled close to $47,000 — nearly a third of the purchase price — against equipment Tom and Femi believed they were buying free and clear.

Abena had not disclosed either lien. When we raised it, her explanation was straightforward rather than evasive: the equipment loan was on autopay and she had simply lost track of the remaining balance, and the supplier invoice was a dispute she thought had already been resolved. Whether or not that was the full picture, the practical problem was the same — if the deal closed with those registrations still in place, the lenders could seize the equipment from the new owners to satisfy Abena's unpaid debt, regardless of what the purchase agreement between Tom, Femi, and Abena said. A security interest binds the property, not just the original debtor.

Tom and Femi's instinct, once they heard the numbers, was to walk away from the deal entirely. That reaction is common among first-time buyers, but it is not usually the right one. A registered lien is a common finding on a small business search, not a sign the whole transaction is compromised — most sellers of an established business have financed at least some of their equipment at one point or another, and an unpaid supplier invoice is an ordinary business dispute rather than evidence of fraud. What matters is not whether a lien shows up, but whether it gets cleared properly before the buyers take ownership. Walking away would have cost Tom and Femi a shop they had spent three years saving for, over a problem that was straightforward to fix once it was out in the open. The search had done exactly what it was supposed to do: surface the issue while there was still time and leverage to deal with it, rather than after closing, when the buyers' only recourse would have been a lawsuit against a seller who might not have the money to make them whole.

What we did

1. Confirmed the registrations against the actual equipment. We matched each PPSA registration to specific serial numbers on the lifts and diagnostic equipment listed in the purchase agreement, so there was no ambiguity about which assets were affected and which were not.
2. Went back to Abena's side with the numbers, not accusations. Rather than treating the omission as bad faith, our approach was to lay out exactly what the searches showed and ask how Abena intended to clear the liens before closing. This kept the deal on a cooperative footing instead of an adversarial one.
3. Built a payout-at-closing structure into the agreement. Instead of trusting that Abena would pay off the lienholders afterward, we restructured the closing so that the lien amounts — roughly $47,000 combined — would be paid directly out of the sale proceeds at the lawyers' offices, with the lenders providing written discharge confirmations before the equipment transferred. This is the same basic mechanism used in a house sale to pay off a mortgage at closing, applied to business equipment liens.
4. Negotiated a modest price adjustment for the timing risk. Clearing a lien takes paperwork and a few business days even once everyone agrees to it, and Tom and Femi were taking on the risk that closing could slip. Their price was reduced by about $6,000 to reflect that risk and the extra legal work involved, bringing the effective purchase price down while Abena still walked away with proceeds well above her outstanding debts.
5. Added a holdback for the disputed supplier invoice. Because the parts supplier's $9,000 claim was contested rather than plainly owed, we set aside that amount in escrow rather than releasing it to Abena outright, to be paid out once the dispute was formally resolved between Abena and the supplier — keeping Tom and Femi out of a fight that was not theirs.
6. Confirmed the discharges before releasing final funds. On closing day, funds were held until the equipment lender's discharge was confirmed, so Tom and Femi never took ownership of equipment still carrying a live lien.

The outcome

The deal closed about five weeks later than originally planned — not the two-day emergency of a residential closing gone wrong, but a real delay that pushed back Tom and Femi's plans to give notice at their existing jobs. They paid roughly $144,000 for the business after the price adjustment, and both liens were discharged at closing, so they took ownership of equipment that was genuinely free of registered claims. The $9,000 holdback was released to Abena about two months later once she resolved the supplier dispute directly.

It was not a clean win for either side. Abena netted less than her original asking price and had an uncomfortable conversation about debts she should have tracked more carefully. Tom and Femi got the business they wanted, but later than planned and with legal costs and delay they had not budgeted for, on top of learning that a handshake deal and a short letter of intent are not protection against a seller's creditors. Both sides, though, got a shop that changed hands with clear title to its equipment — which is the outcome that matters most a year down the road, when nobody wants a lender showing up to repossess a lift mid-oil-change.

What you can learn from this