Selling a Burlington Restaurant With Hidden Equipment Liens

The situation

Piotr and Zofia had run a licensed restaurant in Burlington together for close to eight years, alongside their full-time jobs — Piotr as an insurance adjuster, Zofia as a court clerk. The restaurant was a side venture that had grown into a serious asset: a busy dining room, a full liquor licence, and a kitchen they had upgraded twice since opening. When a buyer named Bilal made an offer to purchase the business for roughly $1,150,000, covering the equipment, the goodwill, an assignment of the commercial lease, and a transfer of the liquor licence, the partners were ready to move on.

They retained Treadstone Law to act on the sale. The agreement of purchase and sale, the contract setting out the price and closing terms, was already signed by the time the file reached our office, with a closing date about five weeks out. Our first task on any business sale is the same regardless of how confident the sellers are: verify what is actually owed against the assets being sold, before the buyer's lawyer finds it first.

What the search found

A sale of this kind is usually structured as an asset sale, meaning the buyer purchases specific assets of the business — equipment, inventory, the lease, the licence — rather than shares in the corporation itself. Buyers in an asset sale still need assurance that what they are buying is free of registered claims, because equipment can be pledged as collateral without ever leaving the seller's kitchen. That assurance comes from a search under the Personal Property Security Act, the Ontario law governing registered security interests in equipment, vehicles, and other personal property. A lender or equipment financier who registers under this Act is protected even if the equipment changes hands — the lien follows the asset, not the person who signed the loan.

Our search came back with two registrations against the restaurant's equipment. The first was from the company that had financed the kitchen's walk-in cooler and exhaust hood system installed during the first renovation. Piotr and Zofia were confident this loan had been paid off after they refinanced their equipment debt through their bank two years earlier — but the original financier's registration had never been discharged. The second was more surprising: a lease for the point-of-sale terminals and card readers that the partners believed had ended on schedule. It had instead renewed automatically for an additional term neither of them remembered agreeing to, leaving an outstanding balance still owing.

Together, the two registrations totalled roughly $71,000. Under the sale agreement, Piotr and Zofia were contractually obligated to deliver the equipment free of encumbrances at closing — a standard requirement, and one Bilal's lawyer would confirm independently before releasing any funds. Left unresolved, either lien gave the buyer's lawyer grounds to delay closing or reduce the price on the spot.

What we did

1. Flagged the liens immediately, before the buyer's search did. We contacted Piotr and Zofia the same day the results came back rather than waiting for a scheduled call. Getting ahead of the discovery mattered — sellers who raise a problem themselves keep more control over the solution than sellers who are confronted with it by the other side.
2. Obtained payout statements from both registered parties. A payout statement states the exact amount required to discharge a registration as of a specific date, including any interest or early payout charges. The equipment financier's statement matched what the partners expected. The point-of-sale lease company's statement did not — it included an early termination charge for ending the renewed term ahead of schedule, on top of the outstanding balance.
3. Recalculated the sellers' net proceeds against the sale price. The purchase price of roughly $1,150,000 was already allocated to cover the partners' existing business loan and closing costs. Adding a further $71,000 in lien payouts, plus the early termination charge, left a real shortfall against what Piotr and Zofia had expected to walk away with — this was the loss the file needed to contain, not eliminate.
4. Structured the payouts through the closing itself, rather than delaying it. We arranged for both lien amounts to be paid directly from the sale proceeds at closing, through our trust account, with formal discharges registered immediately after. This is a routine mechanic in Ontario closings — it let the closing proceed on the scheduled date instead of being pushed back while the partners tried to raise the funds themselves.
5. Disclosed the liens to the buyer's lawyer before they were asked about. We provided both payout statements and our discharge plan to Bilal's lawyer well ahead of closing. Buyers who see a seller managing a problem transparently are far less likely to use it as leverage to renegotiate price — Bilal's lawyer accepted the plan without seeking any further concessions.

The outcome

The sale closed on the scheduled date. Bilal took ownership of the restaurant with clean title to the equipment, the liquor licence transfer processed in the weeks that followed, and the deal that had been five weeks from signature to closing never slipped a single day.

But the outcome was not the clean payday Piotr and Zofia had pictured when they signed the agreement. Between the two lien payouts and the early termination charge on the point-of-sale lease, the partners' net proceeds came in roughly $74,000 lower than they had projected before the search. That gap was real money, split between two partners who had planned around a different number. It was, in every sense, a hard lesson rather than a happy ending — the kind of outcome where the right legal work limits damage instead of preventing it outright.

What the file avoided was worse. Had the liens surfaced during the buyer's own due diligence instead of the sellers', Bilal's lawyer would have been within their rights to delay closing indefinitely until the registrations were cleared, or to demand a price reduction beyond the actual cost of the liens, using the discovery as leverage in a deal already under a signed contract. A collapsed or renegotiated deal at that stage, after a buyer has committed financing and a seller has told staff and suppliers the business is changing hands, tends to cost far more than the liens themselves. Piotr and Zofia lost money they had not expected to lose. They did not lose the sale.

What you can learn from this