Drafting a Commercial Asset Purchase Agreement (APA) in Ontario typically costs between $3,500 and $15,000+ CAD in legal fees. The final bill depends heavily on the complexity of inventory evaluations, commercial lease assignments, intellectual property transfers, and the depth of required due diligence searches.
Buying or selling a business in Ontario is a major financial milestone, but the legal structure of the deal changes everything. In a Share Purchase Agreement, you buy the entire corporate entity, warts and liabilities included. However, many buyers in cities like Toronto, London, or Brampton prefer an Asset Purchase Agreement (APA). This allows you to “cherry-pick” the valuable assets-like equipment, inventory, and customer lists-while leaving the seller’s debts and corporate history behind.
While an APA sounds cleaner, drafting the legal contract is incredibly detail-oriented. A business lawyer must ensure that every single asset is properly transferred, third-party contracts are safely assigned, and strict non-compete clauses are airtight. If you are preparing to buy a restaurant, a retail store, or a manufacturing plant, understanding the legal fees and the procedural timeline is crucial for your business budget. 💰
Step-by-Step Process for Drafting an APA in Ontario
An Asset Purchase Agreement is rarely a standardized document. It must be tailored to the specific industry and the exact assets changing hands. Here is how a commercial law firm guides buyers and sellers through the transaction.
Step 1: Signing the Letter of Intent (LOI)
Before drafting the massive APA, the buyer and seller usually negotiate a Letter of Intent (LOI). This is a shorter, often non-binding document that outlines the basic terms of the deal: the purchase price, the closing date, and exactly which assets are included or excluded.
Your lawyer will typically include binding clauses in the LOI, such as confidentiality agreements (NDAs) and exclusivity periods, ensuring the seller cannot shop your offer to a competitor while you spend money on legal fees. 🤝
Step 2: Conducting Due Diligence and PPSA Searches
Once the LOI is signed, the buyer’s lawyer enters the due diligence phase. Because you are buying specific assets, your lawyer must ensure the seller actually owns them free and clear. They will conduct searches under Ontario’s Personal Property Security Act (PPSA) to check for liens or bank loans registered against the equipment.
They will also perform Canada Revenue Agency (CRA) searches to ensure the seller has no outstanding tax liabilities that could attach to the assets, and check for any active litigation against the business at the local Superior Court of Justice. 🔍
Step 3: Drafting the Asset Purchase Agreement
With a clear picture of the business, the main APA is drafted. This contract meticulously lists the assets. It details how the purchase price is allocated (which has massive tax implications for both parties regarding capital gains and depreciation).
Crucial sections include representations and warranties (promises from the seller about the condition of the assets), the assignment of the commercial lease, and the transfer of intellectual property. A robust non-compete clause is also inserted to prevent the seller from opening an identical business next door. 🔒
Step 4: Approvals, Adjustments, and Closing
As the closing date approaches, your lawyer will handle third-party approvals. If the business operates out of a rented space, the landlord must formally consent to assigning the commercial lease to the new buyer.
On closing day, final adjustments are made for prepaid expenses (like rent or utilities), the funds are transferred in Canadian dollars via the lawyers’ trust accounts, and the Bill of Sale is executed. You are now the official owner of the assets. 🔑
How Much Does it Cost in Ontario?
The legal fees for an APA vary wildly based on the size of the deal. Buying a local coffee shop’s equipment is much cheaper than purchasing the heavy machinery and intellectual property of a tech manufacturing firm. Below are current estimated costs in Ontario for May 2026.
- Letter of Intent (LOI) Drafting: $1,000 to $2,500 CAD.
- Due Diligence and PPSA/Corporate Searches: $500 to $1,500 CAD (plus government disbursement fees).
- Drafting and Negotiating the Main APA: $2,500 to $8,000+ CAD.
- Lease Assignment Negotiation: $1,000 to $3,000 CAD. (Landlords often charge their own legal fees for this, which the buyer or seller must cover).
| Size & Type of Asset Purchase | Estimated Total Legal Fees (CAD) | Key Cost Factors |
|---|---|---|
| Small Business (e.g., Local Salon, Café) | $3,500 – $6,000 | Standard equipment list, simple lease assignment, straightforward non-compete. |
| Medium Business (e.g., Manufacturing, Franchise) | $7,000 – $12,000 | Complex inventory valuations, franchisor approvals, transferring multiple employee contracts. |
| Large Corporate Divestiture | $15,000+ | Extensive IP transfers, massive due diligence, environmental assessments. |
Buyers should also budget for land transfer taxes if real estate is included, and potential harmonized sales tax (HST) implications on the assets, though certain elections can defer or eliminate this.
How Long Does the Process Take?
A standard commercial asset purchase in Ontario takes roughly 30 to 90 days from the signing of the LOI to the final closing date.
The biggest bottleneck in this timeline is rarely the lawyers; it is usually third parties. Getting a commercial landlord to review and approve a lease assignment can take weeks. If the assets are financed and the seller needs to secure discharge statements from their bank to clear PPSA liens, that can also cause delays. ⏳
Frequently Asked Questions (FAQ)
What is the difference between an APA and a Share Purchase?
In a Share Purchase, you buy the seller’s incorporated company, taking on all its history, tax liabilities, and legal risks. In an Asset Purchase (APA), you only buy specific items (equipment, brand name, inventory) and leave the old corporate shell behind, offering much better liability protection for the buyer.
Do I have to keep the seller’s employees?
Generally, no. In an asset sale in Ontario, employee contracts do not automatically transfer. The buyer can choose to offer new employment contracts to the existing staff, or the seller must terminate them and pay their severance. However, there are exceptions under the Employment Standards Act for continuous employment that your lawyer must review.
Why is the purchase price allocation important?
How you divide the purchase price among equipment, inventory, and goodwill drastically impacts your taxes with the CRA. Buyers usually want to allocate more to depreciable assets, while sellers may prefer allocating to goodwill for favourable capital gains treatment. Your accountant and lawyer will negotiate this balance.
What happens if there is a lien on the equipment I buy?
If a creditor has a PPSA lien registered against an oven or a forklift, and you buy it without clearing the lien, the creditor can legally repossess the equipment from you. This is why thorough due diligence by your law firm is non-negotiable.
Can the seller just open a new business and steal the customers back?
To prevent this, an APA includes Restrictive Covenants, such as a Non-Compete and Non-Solicitation clause. These clauses legally restrict the seller from opening a similar business within a specific geographic radius for a set number of years.
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