The steps at a glance
A commercial purchase in British Columbia follows a predictable sequence, even though every deal is negotiated differently. Most of the risk is managed in the period between an accepted offer and subject removal, so the order matters.
- Define the criteria. Use, size, location, budget, and whether you will occupy the building or hold it for income.
- Make an offer or letter of intent. Price, deposit, conditions (subjects), timelines and closing date.
- Pay the deposit. Held in trust while conditions are worked through.
- Complete due diligence. Title, leases, financials, building, environmental and zoning review.
- Confirm financing. Lender approval, appraisal and any lender-required reports.
- Remove subjects. The contract becomes firm.
- Close. Your lawyer or notary registers the transfer at the Land Title Office, pays property transfer tax and settles the adjustments.
Define your criteria: owner-user or investor
The first question is why you are buying. An owner-user buys space for their own business; an investor buys a stream of rent. The same building can be a good fit for one and a poor fit for the other.
| Question | Owner-user | Investor |
|---|---|---|
| What drives the decision? | Fit for the operation: layout, loading, power, parking, access for staff and customers | Income: rent roll, lease terms, tenant covenant, expenses and resale |
| What matters most in due diligence? | Zoning permits your use; building suits the work; cost to fit out | Leases, estoppel certificates, operating statements, re-leasing risk |
| How is value judged? | Compared with the cost of leasing or building similar space | Net operating income and market cap rates (see commercial property valuation) |
| Possession | Usually vacant possession, or a planned exit of existing tenants | Existing tenancies assumed on closing |
Write the criteria down before touring: permitted use, minimum and maximum size, target areas, price range, how much equity you will put in, and the date you need to be in the building. It speeds up every later step and keeps the search from drifting.
Offers, letters of intent and deposits
Letter of intent or contract?
Larger or more complex purchases often start with a letter of intent (LOI) that sets out the main business terms before lawyers draft a full agreement. An LOI is usually meant to be non-binding, but that depends on how it is written. A Clark Wilson article on the subject explains that Canadian courts look at whether the essential terms were agreed and whether the parties intended to be bound immediately; it cites the BC Court of Appeal in Hartslief v. Terra Nova Royalty Corporation, 2013 BCCA 417 (Clark Wilson). If you want only some clauses to bind (confidentiality or exclusivity, for example), say so expressly and have a lawyer review the wording.
Many BC deals skip the LOI and go straight to a written contract. The BC Real Estate Association and the Canadian Bar Association (BC Branch) publish a Contract of Purchase and Sale for Commercial Real Estate (form BC 2053, revised April 2023) with schedules for buyer's and seller's conditions, accepted tenancies and GST (BCREA/CBA form BC 2053). Larger transactions are often on a lawyer-drafted agreement instead.
Deposits
Under the standard commercial form, the deposit is paid within a set number of hours of acceptance (or on a set date) and held in trust under the Real Estate Services Act. The form provides that the deposit is released only with both parties' written agreement or a court order, and that it is returned if the buyer's conditions are not satisfied or waived by the deadline. The amount is negotiated. Some buyers structure it in stages, with a first deposit on acceptance and a second on subject removal.
Subject periods and the due diligence list
Conditions (subjects) give the buyer time to investigate before the deal is firm. Commercial subject periods are usually longer than residential ones because there is more to review, and the length is a negotiating point in itself. Set realistic deadlines: a lender's appraisal, an environmental report and a building condition assessment can each take several weeks to book and complete.
List the documents you need in the offer itself, with a delivery deadline, so the subject period is not spent waiting for the seller's paperwork.
- Title search (LTSA)Order the title from the Land Title and Survey Authority. It shows the registered owner, legal description and PID, and charges such as mortgages, easements, covenants, judgments, leases and builders' liens (LTSA). Your lawyer should pull and read the charge documents, not only the summary.
- Leases and amendmentsEvery lease, renewal, amendment, side letter and assignment. Check term, rent steps, renewal and termination options, exclusive-use and relocation clauses, and who pays which operating costs (see commercial lease types).
- Estoppel certificatesA signed confirmation from each tenant of rent, term, deposits and any landlord defaults. Blakes notes that purchase and financing agreements often make clean estoppels a closing condition for major tenants, and that a lease's own estoppel form may be less detailed than a buyer or lender wants (Blakes).
- Rent roll and arrearsUnit by unit: tenant, area, rent, recoveries, deposit held, expiry date and any arrears. Reconcile it against the leases and bank deposits.
- Operating statementsSeveral years of income and expenses, property tax notices, insurance, utilities, and year-end common area maintenance reconciliations with tenants.
- Building conditionRoof, structure, mechanical and electrical systems, fire and life safety, accessibility and deferred maintenance, usually through a building condition assessment.
- EnvironmentalPast uses of the site and neighbouring sites, and whether a Phase I environmental site assessment is needed. The sister site covers this in detail: environmental and building due diligence.
- Zoning and permitsConfirm the current zoning allows your intended use, and check open permits, orders or bylaw files with the municipality. See zoning and local government in BC.
- BC Assessment and property classCheck the assessed value and property class, which drive the property tax bill.
- Strata documentsFor a strata unit: bylaws, minutes, budget, contingency reserve fund, depreciation report and any special levies (see commercial strata units).
- Contracts and warrantiesService contracts, equipment leases and roof or equipment warranties, and which of them transfer to you.
Financing approval
Commercial lenders underwrite the property as well as the borrower. Expect the lender to order or require its own appraisal from an accredited appraiser, and often an environmental report and a building condition assessment. For income properties, the loan size is usually limited by the property's net operating income as well as by its value. Build these steps into the subject period, and do not remove the financing subject until you hold a commitment whose conditions you can meet. The commercial financing guide covers lender types, ratios and documents.
Closing, adjustments and property transfer tax
After subjects are removed, the buyer's lawyer or notary prepares the transfer and mortgage documents, and the sale completes when the transfer is registered at the Land Title Office. The standard commercial form adjusts property taxes, utilities, rents and tenant deposits as of the adjustment date, and the buyer takes the accepted tenancies listed in its schedule (BCREA/CBA form BC 2053). On an income property, confirm that security deposits held for tenants are credited to you on closing.
Property transfer tax (paid by the buyer)
BC property transfer tax is based on fair market value and is due when the transfer is registered (Province of BC):
| Portion of fair market value | Rate |
|---|---|
| Up to and including $200,000 | 1% |
| Over $200,000 up to and including $2,000,000 | 2% |
| Over $2,000,000 | 3% |
| Residential portion over $3,000,000 (further tax) | additional 2% |
For example, on a $2,500,000 commercial building the tax works out to $2,000 + $36,000 + $15,000 = $53,000. For mixed-use property, the province states the further 2% applies only to the residential portion. There is no general exemption for commercial buyers.
GST is separate. The standard commercial form provides that the buyer pays applicable GST on top of the price. If the buyer is GST-registered, the buyer usually accounts for it directly; otherwise it is paid to the seller on completion. Confirm the treatment with your accountant well before closing.
This guide is general information. A BC real estate lawyer should review the contract, title and closing documents, an accountant should confirm tax treatment, and value for lending is set by an accredited appraiser (AACI). A REALTOR® can give an opinion of value, but that is not an appraisal.
How Commercial Real Estate Group can help
Sean Phillips, REALTOR® with Coldwell Banker Executives Realty, represents buyers of commercial property across British Columbia: finding and screening properties, preparing offers, and coordinating documents and deadlines through the subject period. See buying with Commercial Real Estate Group, or book a free 10-minute Zoom intro. Paid advisory is available and quoted per property.