Trusted Legal Advice for Smooth Business Transactions

Joining a franchise is very popular amongst our business clients. They choose it out of the belief that a franchise already has a solid client base and established business systems. However, any established franchise would also have countless rules and regulations that its franchisee must follow. It’s crucial to get your business lawyer to review all the details of the franchise agreement before you sign on the dotted line.

Some important and commonly seen franchise terms include:

• Are there any targeted billable targets the franchisee must hit? What happens if the franchisee does not reach those targets?
• What are the franchise fees? How often are they paid?
• Are there any 3rd party cost that the franchisee must pay, such as advertising cost?
• Must the franchisee participate in specific promotional or other events created by the franchisor? Such as holiday discounts?

• What are the rules for running the franchise? (e.g. a café chain may require the franchisee to throw away all products not sold on the day of)
• What are the things that the franchisee must do (e.g. operate 8 hours, 5 days a week), and the things they should not do (e.g. conduct door-to-door advertising)?
• If the franchisor or the franchisee wants to terminate the relationship, what is the procedure? Are there any fees or notice periods?
• Is the franchise agreement up for renewal every year? What are the pre-conditions for a successful renewal?

When the business transaction involves a leased premise (as opposed to a commercial real estate owned by the seller), then landlord consent must be obtained before you buy/sell the business. Otherwise, the new buyers are not allowed to operate in the same property. Thus, it’s essential to include “landlord approval” as a condition on the Offer to buy/sell business.

Most commercial lease have a clause regarding what happens during a lease transfer or assignment. This often comes in 3 versions:

• The seller may assign the lease to any buyers, as long as the landlord agrees, and the landlord shall agree as long as the request is reasonable;
• Whether the seller may assign the lease is completely up to the landlord; the landlord can agree or reject the new tenant without any valid reason;
• The seller may not assign the lease to anyone during the term of the lease (e.g. 5-10 years after it’s signed).

Due to those completely different variations, all business tenants should have their commercial lease reviewed by a business lawyer before signing it and committing to its 5-10 years term. For more information, click HERE.

The landlord may include a clause on the lease assignment stating that the original business tenant (seller) remains liable throughout the entirety of the lease (e.g. 5-10 years) even after the lease is assigned to the buyer and the business is sold. This means that if the new tenant (buyer) fails to pay rent, the landlord can still comes after the old tenant (seller).

Often, it’s difficult, if not impossible, to get the landlord to remove this clause. The next best option is for the buyer and seller to sign an indemnity agreement. This will state that if the buyer fails to pay rent and the landlord comes after the seller, then the buyer must be personally responsible and resolve the situation. For more information, HERE.

When you are buying/selling “shares” to a business, that means the transaction involves the entire company. This includes the company’s business bank account, tax account, employees and clients (if they choose to stay with the new owner), all other assets, and all debts, litigations, and on-going obligations.

The benefit is that as the buyer, you really get everything. You do not need to start a new company, new tax account, or anything new really.

As well, the seller gets to completely walk away from the company after the sale. The seller would no longer be responsible for the company in any way, except for anything that the seller may be held personally liable for during the course of his/her business (e.g. owed employee wages, signed personal indemnities).

Getting everything as the buyer is also a disadvantage. You are getting both the good and the bad. A commercial lawyer must conduct extensive searches to find out all possible bad things associated with the company, including any debts, litigations, owed employee wages, existing commercial leases, or other on-going obligations.

In terms of lease, usually the buyers can take over the lease without a lease assignment or landlord approval, since this is a share transaction. However, if there is a clause in the commercial lease that states any “change of control” in the corporation also requires landlord approval, then lease assignment is once again needed.

When you are buying/selling “assets” to a business, that means the transaction only involves certain specific assets, such as all the cooking equipment and furniture in a restaurant, or all the inventories in a warehouse. Simply put, the business’ bank account, shares, corporate and tax history are not part of the transaction. The buyer is not taking over the seller’s company; the buyer is simply buying specific assets that are owned by the company.

The benefit of an asset purchase/sale is that it is simpler and less risky. As long as the assets being purchased/sold is problem-free, then the buyer would be fine. However, the commercial lawyer must still check to see if there are any legal problems that exist before closing, which may affect assets in the future. For example, if the seller was already bankrupt before closing, then their creditors may have a claim on the assets that the seller owned before closing.

The disadvantage of an asset purchase/sale is that as a buyer, you do not get everything that the company have, and this includes its business bank account, tax and corporate history, and anything else not included on the asset list in your signed Offer. Since asset transactions deal with very specific assets, what IS INCLUDED in the purchase/sale MUST be clearly and specifically listed and signed by both parties.

Similarly, in an asset transaction, the seller cannot walk away clean. The seller must still be responsible for any on-going obligations of the company. At the same time, if there are NO non-compete clause in the purchase agreement, the seller may continue operating the company elsewhere.

While business names and trademarks can be part of the assets being sold, people, including clients and employees, cannot really be considered as “assets”. People have their own free will and may choose to stay with the new business owners (purchasers), or they may choose to leave. Know that inheriting clients and employees is not guaranteed in the transaction.

Lastly, if the business premise is leased, then a lease assignment MUST be obtained from the commercial landlord before the purchase/sale closes. Otherwise, the new buyer cannot conduct business in the same property.

When there are one or more beneficiaries who are under 18 years old, then the application becomes much more difficult. Minors cannot legally own property or open bank accounts in only their names. At the same time, minors cannot consent to give up their inheritance, unlike adult beneficiaries. This creates a huge dilemma: the minor must receive their inheritance, and at the same time the inheritance cannot be put into their names.

There are two solutions to this problem. #1, and the more common solution, is for the Court to hold the minor’s inheritance (for free) until the minor becomes 18. However, the Court will not make any investments that have any risk, so at most they will invest the money in GICs. During this time, if the minor’s caretakers require assess to the inheritance to pay for the minor’s necessary expenses, such as education and medical bills, then they must apply to the Court each time they need money. The Court will be strict on assessing whether the expense is a necessity for the minor and whether the caretaker can afford to pay for that expense themselves without access to the minor’s inheritance.

The 2nd solution is to file a Guardianship application, which involves appointing an adult Guardian of Property for the minor. This is different from an estate trustee, who only needs to distribute the estate right away after probate is approved. The Guardian for Property must hold the property for as many years as it takes for the minor to become 18 years old.

While it seems that the Guardian are given more freedom when it comes to investment and spending on behalf of the minor, the Court will stringently analyze  a financial plan submitted by the Guardian regarding how they will manage the minor’s inheritance. The Court will not tolerate any at risk investments or unnecessary spendings. Also, the Guardian for Property is almost always required to buy a bond (costing 5% of the minor’s total inheritance) for every single year that they are managing the minor’s inheritance.

Up to 70% of our probate clients do not have a valid Will. This means we must prepare and submit the much harder, Probate without a Will application.

When there is no Will, if the Court has any doubt that:

• There may be a conflict of interest between the executor and the beneficiaries;
• The executor does not have an exhaustive list of eligible beneficiaries (there may be missing beneficiaries);
• There are conflicts or disagreements between the beneficiaries;
• The executor is not credible or trustworthy

Then the Court will ask the executor to use his/her own money to buy a bond insurance, which usually costs 5% of the entire estate value.

When the deceased has no Will, the only people who may receive the inheritance are those related to the deceased by blood, adoption, or marriage, in order of priority.

For instance, if the deceased have spouse and children, then his/her parents, siblings, and other relatives would not be entitled to any inheritance or even notice that the probate application has been submitted.
Common-law partners are not eligible as beneficiaries, when there is no Will.

The person applying to become executor must provide details of the deceased’s assets and a comprehensive list of the deceased’s eligible beneficiaries.

Lastly, as the probate application to Court is very technical and many documents require notarization by lawyers, the best approach is to hire an experienced estate lawyer to handle this process. Otherwise, the application is often rejected by the Court as being incomplete or inaccurate.

Probate with a valid Will is much easier than without a Will. Unfortunately, to date only 30% of our clients have a Will.

The key is on having a valid, or accurate Will. This means that the Will must satisfy 8 requirements. For more information, please visit our Estate Planning Page.

While some deficits can be fixed, like doing an Affidavit of Execution with one of the witnesses who signed on the Will, if he/she is still alive and accessible; other mistakes cannot be fixed, such as one of the witnesses being a beneficiary or spouse of a beneficiary.

The beneficiaries on the Will must be specifically named. Having vague phrases like my children is unhelpful because then the executor must locate all of the deceased’s children and the Court will likely require a bond insurance before issuing the approval (costing 5% of the entire estate value).

If there is a mistake that cannot be fixed, then a Probate Without Will application must be submitted instead.

The probate application requires the executor to provide a detailed list of ALL the assets owned by the deceased. This includes real estate properties, bank accounts, vehicles, investments… and their value. So how does one get this information?

Ideally, the deceased would have kept a list of assets owned during his/her life (as is the case when clients do estate planning with our firm). If not, then the executor must spend a lot of time searching for the assets:

Real Estate

If the executor knows the address of the deceased’s real estate, then as lawyers (in both real estate and wills & estate), we can easily get the deed from the Land Registry Office (LRO). If not, then we must go through the long process of searching the deceased’s name in each municipal LRO office. Also, when multiple property owners have the same name, we must examine each deed to ensure we get the right one.

Once we find the properties, the executor should hire a realtor or professional appraiser to prepare a comparative report, which will provide a good estimate of how much the property is worth in the year of the deceased’s death.

If there is a mortgage on title, then we must get a mortgage information statement from the bank, to know the amount of mortgage outstanding. This is the only value that may be deducted from the total estate value for Estate Administration Tax purposes.

Bank accounts and Investments

The executor should be going to each bank in which the deceased had an account or a bank access card to set up an Estate Case. This process may require the lawyer to prepare and notarize some documents, and in some cases, accompany the executor to the bank appointments.
After the Estate Case is established with the banks, the executor would be given a summary of all the bank account balances and investments owned by the deceased. Those accounts would also be labelled as “frozen” and all pre-authorized payments would be cancelled. This stops those accounts from being depleted before the beneficiaries can receive their inheritance.

Vehicles

All vehicles owned by the deceased must be listed on the probate application, with their value estimated by second hand vehicle vendors, Service Ontario, or car dealerships.

Companies

If the deceased owned any companies and there is NO Corporate Wills, then the corporate accountant or a professional appraiser must do an estimate of how much the corporation is worth. This information must be recorded on the probate application.

Other assets

Any other type of assets that have monetary value and owned by the deceased must also be listed on the probate application, including jewellery, paintings, etc.

The first step to estate administration is telling the banks and other institutions that the person in question has passed away. Unless the executor does this themselves, there is not really any “automatic” way that the banks can be aware of this.

This will result in an “Estate Case” being created with the banks and other institutions, like mortgage lenders. That way, if any routine payments like mortgages are not made on time, the lenders would know the deceased is not doing that maliciously and on purpose, but rather it’s because he/she has passed away. This usually significantly reduce the risk of the banks starting selling off the estate assets like the estate property.

They will usually wait until the probate application has been approved before proceeding with legal actions.

Further, the lawyer executor would ensure that banks have cancelled all pre-authorized payments, such as monthly payments for internet fees, property taxes, etc. when creating the Estate Case. This prevents the estate account from being depleted and the beneficiaries receiving less inheritance at the end.

Finally, it’s time to distribute the inheritance to the beneficiaries!

As this is the last step of estate administration, the lawyer executor must show the beneficiaries a detailed record or breakdown of all transactions that went on beforehand. For instance, how much money was taken out of the estate for legal fees, income taxes, creditor payments, etc. This way, the beneficiaries can rest assured that they are getting the maximum amount of inheritance reasonably possible.

In contrast, it is hard to get such detailed record-keeping from a non-professional executor, especially if that person is not used to keeping receipts and records of every single transaction from the estate account. Disputes between executor and beneficiaries are common, and a professional lawyer is usually better equipped to eliminate, reduce, and resolve such conflicts.

For any estate value above $50,000, the executor must pay a 1.5% Estate Administration Tax on all values above $50k. This must be done within 180 days of receiving probate approval. Specifically, a detailed information statement must be filed with the Ministry of Finance and the taxes payable must be made into a bank draft to be delivered to the Court that approved the probate in the first place. Given the technicality of the two tasks, an estate lawyer is best equipped to handle them.

Also, the executor must file the deceased’s last year of income taxes, called terminal income taxes, with the accountant. This is a complicated filing, as all of the deceased’s assets are considered sold to the beneficiaries at fair market value. The lawyer executor should take reasonable steps to reduce income taxes payable, such as selling the deceased’s property in the estate’s name, in the year of the deceased’s passing, to qualify for the principal residence exemption (no taxes payable when the principal residence is sold).

Not wanting to deal with creditors is a top reason why many estate decided to hire a lawyer executor.

Unfortunately, many creditors have the power to sell off estate properties like real estate owned by the deceased, if their debt is not paid immediately after the deceased’s passing. If you read the fine print on many types of loan agreements, unfortunately “passing away” is considered one type of loan default that requires immediate and full repayment.

Lawyer executors are better equipped in dealing with creditors, as they see things like power of sale, lien registrations on a daily basis. They can better negotiate a reasonable timeline and a payout plan with creditors to reduce the chances of them selling off assets or incurring a huge amount of interest charges and service fees.

Once probate approval is given, the lawyer executor must gather detailed information about the deceased’s assets.

Bank Accounts

Correspondence with each bank’s estate department is very technical. In order to avoid liability, the banks will always require the executor to sign and notarize many documents before releasing the funds.

Also, since dealing with estate is often considered a non-urgent task with the banks, frequent follow-ups are required.

The lawyer is much better equipped in dealing with the bank’s estate department given their professional knowledge and experience. They can easily prepare and notarize forms, and can correct the bank’s instructions when they are inconsistent with the law.

Investments Accounts

Other than the banks, the deceased may have accounts with investment institutions such as MICs. Those institutions often require more complicated documents and correspondence before funds can be released. Again, this task is much easier for a knowledgeable and experienced estate lawyer.

Real Estate

Ideally, your lawyer executor should be both a Real Estate Lawyer and Wills & Estates Lawyer. That way, they can transfer any real estate owned by the deceased into the beneficiaries’ name. Or they can close the sale of property in the name of the estate and then transfer the sale proceeds to the beneficiaries. Being an expert in both areas of law means they would only charge the estate one single fee and not two legal fees.

Vehicles

The lawyer executor would purchase a Used Vehicle Information Package and facilitate the transfer of vehicle ownership at Service Ontario. Again, any documents that require preparation and notarization can easily be done by the lawyer executor.

When assessing the probate application, the Court will likely require the executor to purchase a bond insurance (often costing 5% of the entire estate) when:

1. The executor is a foreigner;
2. One or more beneficiaries are minors (under 18 years old);
3. There is a conflict of interest between the executor and the beneficiary (e.g. the executor is the ex-spouse of the deceased, and the beneficiary is their child)
4. There is no valid Will.

Especially in the above situations, appointing an experienced Estate Lawyer as the executor may be the best option. Unlike non-professional executors, lawyers have professional insurance and must be audited by the Law Society in every year they act as executor. So it is very unlikely for the Court to require a lawyer executor to pay bond insurance.

Also, with lawyer as executor, the estate should not be double-charged: once for legal fees and once for executor fees. Only the executor fees should be charged.