A locked-box deal fixes the price months before the cash moves. The ticker is what compensates the seller for the gap — and Canadian law caps how it can be written.
Short answer
A locked-box ticker is a fixed daily or annual rate applied to a locked-box deal’s fixed equity price, compensating the seller for transferring value as of a balance-sheet date months before the cash actually changes hands at closing. In a Canadian deal it cannot lawfully exceed 5% per annum unless the agreement also states the equivalent yearly rate — even though the underlying transaction is a share purchase, not a mortgage.
Interest Act, R.S.C. 1985, c. I-15, s.4 provides: “Except as to mortgages on real property or hypothecs on immovables, whenever any interest is...made payable at a rate or percentage per day, week, month, or at any rate or percentage for any period less than a year, no interest exceeding the rate or percentage of five per cent per annum shall be chargeable, payable or recoverable on any part of the principal money unless the contract contains an express statement of the yearly rate or percentage of interest to which the other rate or percentage is equivalent.” The section’s own opening words carve mortgages OUT — which is exactly what lets it reach an ordinary commercial share purchase agreement.
Ontario’s Superior Court has applied s.4 to non-mortgage commercial credit charges: in Solar Power Network Inc. v. ClearFlow Energy Finance Corp., 2018 ONSC 7286, the court found charges calculated on a sub-annual basis in commercial loan documents to be interest within the meaning of section 4, and reduced the effective rate to 5% per annum for want of a stated annual-equivalent rate. Draft the ticker with both the per-day rate AND its express annual equivalent stated in the agreement, and the cap never engages at all — it is a drafting defect, not an unavoidable limit on what a locked-box ticker can charge.
See it decided in the locked-box ticker case file, the take-or-pay commitment file and the closing-statement accounting-policy file.
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