What is Closing?
Closing consists of two major components; (a) the process leading up to the day on which the transactions closes (or is finalized), and (b) the Closing Day itself.
Frequently Asked Questions
Independent Legal Advice (“ILA”) refers to legal advice given by a lawyer who is not involved in the transaction with the client. ILA is usually required by lenders and other sophisticated parties who want to ensure that their clients are fully informed of the content and consequences of a transaction. ILA should be obtained by any person who is self represented and who is involved in a transaction where all, or some, of the parties are represented by the same lawyer.
By the day of closing, the purchaser’s solicitor will have informed the vendor’s solicitor that the funds are available, the parties will have exchanged the closing documents, and all the parties will be ready to close. On the Closing Date, the lawyers will agree that the transaction has closed, the funds will be requested (if a lender is involved) and paid over, and any other undertakings will be honoured. When everything is done, the vendor and purchaser will be informed that the transaction is finalized and the purchaser will take control of the business.
If the business is in a premises, the property is either owned by the vendor or it is leased. If it is leased, there will be a landlord and the lease will have to be either assigned or renewed. Either way, the landlord will have to be informed of the transaction and will be involved. Not informing the landlord can have dire consequences, even cancellation and eviction of the purchaser.
A lender is involved when the purchase price, or a portion thereof, is being financed. The lender will have its own requirements and documents and will be represented by a lawyer. During the closing process, the lender confirms that the funds are available. On the closing date, the lender supplies the funds to the purchaser’s solicitor, who pays it over to the vendor’s solicitor.
Independent Legal Advice must be obtained as early as possible, even before any formal legal steps are started.
Closing documents give effect to the instructions of the parties in the purchase agreement. Not all the terms of the agreement are final at the time when the purchase agreement is signed; closing documents ensure that the agreed terms are in place and adhered to at the time of closing.
If a transaction does not close, the money in trust is returned to the purchaser. The parties’ rights are based on the purchase agreement, and if they want to pursue their remedies, they will rely on the purchase agreement.
Closing documents are signed in anticipation of the closing and supplied to the other party on the undertaking not to use the documents, or to supply it to the client, if the transaction does not close. If the transaction does not close, the documents are returned. The parties are not bound by the closing documents and the parties will have to rely on the purchase agreement.