Waiving a Closing Condition to Save a $68M Deal

The situation

Cristina had spent a decade building a multi-unit franchise business — several locations across the Niagara region, run tightly and profitably. She wanted to diversify into a sector she understood from the outside: construction. Working with her longtime business partner Jomar, who owned a construction company of his own and understood the industry from the inside, she identified a target — a mid-sized construction company based in Welland, owned by Samir, with a strong order book in industrial and commercial builds and a workforce that had stayed with the company for years.

The deal took shape as a share purchase: Cristina and Jomar's holding company would buy all of the shares of Samir's construction company for a price that, after adjustments for cash and debt at closing, would land around $68 million. Samir wanted to stay on for a transition period to hand off client relationships, then exit. Both sides had reasons to want the deal to close on schedule — Samir had a retirement timeline, and Cristina had already lined up acquisition financing with a term that would expire if the deal dragged.

Our firm was retained as deal counsel for Cristina and Jomar, which meant more than drafting the purchase agreement. On a transaction this size, closing depends on several workstreams finishing on time and talking to each other: the accountants finalizing a working capital calculation, the financing lender's counsel confirming security is in place, environmental and title consultants clearing the real property, and litigation counsel confirming there was nothing outstanding that could follow the business into new ownership. Running that team — keeping every workstream on the same closing date, and flagging the moment one of them fell behind — was as much the job as the contract itself.

What due diligence turned up

Due diligence surfaced two issues, one manageable and one that threatened the closing date itself. The manageable one was a working capital shortfall — the target's cash and receivables at the expected closing date were trending about $1.5 million below the level the purchase price assumed, mostly from a slow-paying commercial client. That kind of gap gets resolved through the price mechanics already built into most share purchase agreements: a post-closing adjustment, dollar for dollar.

The serious issue was a construction lien registered against one of the company's active job sites. A subcontractor on a large industrial project had registered a lien under the Construction Act for about $1.4 million, alleging it had not been paid in full for work completed. The company disputed the amount, but the lien was real, it was registered, and it was not going to be resolved through litigation before the scheduled closing date — that kind of dispute typically takes many months to work through, sometimes longer if it heads to trial.

The purchase agreement's original closing conditions required Samir to deliver a full discharge of any liens against the business before closing, along with confirmation that the company's account with the workplace safety insurance system was in good standing. The lien discharge condition, as drafted, could not be satisfied on schedule. Three days before the scheduled closing, it became clear the choice was not between a clean closing and a delayed one — it was between closing with the lien issue managed contractually, or not closing at all, with Cristina's financing commitment at risk of expiring and Samir's retirement plans on hold indefinitely.

What we did

1. Separated the disputed liability from the deal's viability. The lien was a real risk, but it was a bounded, quantifiable one — the subcontractor's claim, even if it succeeded in full, was for a known amount. That distinction mattered: an unresolved lien of this kind is a reason to negotiate protection, not necessarily a reason to walk away from an otherwise sound business.
2. Proposed waiving the closing condition in exchange for an escrow holdback. Rather than requiring Samir to deliver an impossible discharge on the original schedule, we advised Cristina and Jomar to waive that specific condition and instead hold back roughly $3 million of the purchase price in escrow — more than double the disputed lien amount, to cover the claim plus legal costs to resolve it, with the balance released to Samir once the lien was discharged or the dispute settled.
3. Extended the indemnity survival period for that one claim. The purchase agreement's general warranties would normally expire within a defined period after closing. We negotiated a carve-out so that Samir's indemnity for the lien claim specifically would survive until the underlying dispute was fully resolved, however long that took, rather than expiring on the standard timeline.
4. Kept the financing and working capital tracks moving in parallel. While the lien negotiation was underway, we stayed in contact with the lender's counsel to confirm the financing commitment would hold for a short adjustment period, and finalized the $1.5 million working capital adjustment to the purchase price so that issue would not also need last-minute negotiation.
5. Documented the waiver formally. Waiving a closing condition is a decision, not a formality — it needed to be made deliberately and in writing, with Cristina and Jomar confirming in the closing documents that they understood the lien remained outstanding and were proceeding on the strength of the escrow and extended indemnity, not on the assumption the risk had disappeared.

The outcome

The deal closed roughly a week later than originally scheduled, on adjusted terms. Cristina and Jomar's holding company acquired the construction business for an effective price of about $66.5 million once the working capital adjustment was applied, with $3 million of that held in escrow against the outstanding lien. Samir received the bulk of the purchase price at closing but had to wait for the lien dispute to resolve before the holdback was released — and remained on the hook, through the extended indemnity, for the full amount of the claim if the subcontractor succeeded.

Neither side got everything they wanted. Cristina and Jomar took on a business with an unresolved dispute attached to it rather than the clean closing they had originally bargained for, and closing was delayed past the date they had hoped to have the acquisition finalized. Samir received less cash at closing than expected and carried continuing exposure on the lien claim well after handing over the company. But both sides avoided the worse outcome: a collapsed deal, an expired financing commitment for the buyers, and an open-ended sale process for a seller who had already committed to a retirement timeline.

The lien dispute was resolved about eight months later for an amount below the escrowed holdback, and the remaining balance was released to Samir with interest as provided for in the escrow agreement. The transition period went ahead as planned, and Cristina's holding company retained the workforce and client relationships that had made the target attractive in the first place.

Looking back, Cristina described the escrow arrangement as the difference between a manageable risk and a deal-breaking one. She had gone into the process assuming due diligence would either clear the target or kill the deal outright, and had not expected a middle path where the parties simply priced the uncertainty and moved forward together. Samir, for his part, later said the extended indemnity felt uncomfortable at signing but reasonable once the dispute actually settled for less than the full claimed amount — the holdback had done its job without becoming a windfall for either side.

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