A seller who wants to keep the building the business operates from is not being difficult — it is a common, legitimate preference, and it forces a real choice: fold the real estate into the same transaction, or negotiate a lease alongside a separate purchase.
Key takeaways
Whether the facility a target operates from should be part of the same transaction as the operating business is a question with a real answer, not just a drafting preference — and the answer changes the tax treatment of the whole deal, not only the real estate piece of it.
A treadstonelaw answer on whether a seller can carve out real estate and keep it personally confirms this is routine: “Yes, this is a common seller preference, often for ongoing rental income or estate planning reasons.” Mechanically, “if the real estate currently sits inside the operating corporation, the seller generally transfers it out to themselves or another entity before the sale closes, so it's no longer part of what you're buying; if it was already held personally or separately, it simply isn't included in the sale to begin with.” What follows is the part buyers under-negotiate: “if the business needs to keep operating from that location, a new lease between you and the seller, as the property's new personal owner, needs to be negotiated and signed as part of the deal — its term, rent, and renewal rights matter as much as the purchase price itself.” A lease negotiated as an afterthought after the purchase price is already set gives the landlord-seller most of the leverage.
Buyers sometimes still assume a bulk-sale statute protects them when a business including real property changes hands. In Ontario it does not, because there is nothing left to apply. A treadstonelaw note on the Bulk Sales Act and business real-property purchases states: “The Bulk Sales Act was repealed in Ontario in 2017 and no longer applies to any purchase.” That does not remove the underlying creditor-risk concern the Act used to address — it just moves how that risk is managed: “Creditor risk is now addressed through title searches, encumbrance checks, and purchase agreement protections instead.” A buyer folding real estate into the deal should still confirm there are no unpaid property taxes, unregistered liens, or writs of execution against the property, and should still get contractual protection in the agreement — the statute just no longer does that work automatically.
The section 167 election that relieves most of a business asset sale from GST/HST carries its own carve-back for real property. Subsection 167(1.1)(a) of the Excise Tax Act lists a taxable sale of real property, “where the recipient is not a registrant,” as one of the categories that stays taxable even where the election is made. In practice: if the buying entity is a GST/HST registrant by closing, the real-property component of a combined purchase can ride the same relief as the rest of the business; if it is not, the real property stays taxable even while the operating assets around it are relieved. Where the buyer is a freshly incorporated acquisition vehicle, confirming its registrant status before closing is not a formality — it changes whether the real-property leg of the deal is taxed at all.
Where the deal reaches into provincial sales tax territory, real property tends to be treated consistently even across provinces that disagree on almost everything else about a business sale. Saskatchewan's own bulletin on buying and selling a business lists land and buildings and leasehold improvements as not subject to PST. British Columbia's equivalent guidance lists real property as not taxable as well, though it flags a separate concern: “While PST does not apply to purchases or transfers of an interest in real property, property transfer tax may apply.” A buyer should not read “not taxable under PST” as “no provincial tax at all” — a separate transfer tax regime can still apply on registration of the real property transfer.
Bundling real estate into the deal does not remove the need to allocate the price across asset categories. A treadstonelaw answer on structuring price allocation between land and goodwill explains why the split matters for tax purposes: “Buildings are depreciable for tax purposes, while land generally is not,” which affects the buyer's future capital cost allowance claims, and “buyers and sellers often have opposing tax incentives, making allocation a genuinely negotiated term” — with “HST treatment… also differ[ing] across land, building, and goodwill components.” That allocation fight is the same one a buyer would face on the equipment-versus-goodwill split in any asset deal, just with a third category added.
Getting the acquiring entity's GST/HST registration in order before closing is the same closing-condition discipline covered in acquiring through a newly incorporated company; how the assumed-liabilities schedule treats a leased-back property once the seller keeps it is covered in assumed liabilities in an asset transaction; and the land-versus-building-versus-goodwill allocation fight here is one instance of the broader pricing question in pricing the difference between a share and asset deal.
A sponsor is acquiring an $8 million manufacturing business that operates from a facility worth $2.5 million, currently held inside the target corporation. Two paths are priced side by side. Under the first, the real property stays in the deal: the acquiring Newco confirms its GST/HST registration before closing so the section 167 election reaches the real-property component too, and the purchase agreement allocates the $8 million across land, building and goodwill, with the buyer pushing for more value on the depreciable building. Under the second, the seller carves the facility out and keeps it personally for rental income, and the parties negotiate a ten-year lease with defined renewal terms alongside the now-$5.5 million operating-business purchase. Neither path is obviously cheaper — the first buys certainty over the premises and future depreciation; the second frees up purchase-price capital but makes the buyer a long-term tenant of the seller.
Bundling the property into the deal does not remove the need for title searches and encumbrance checks — Ontario's Bulk Sales Act, which used to provide a statutory safeguard, was repealed in 2017, so purchase-agreement protections and due diligence now do that work instead.
It can. The section 167 election that relieves most of a business asset sale from GST/HST carves real property back into taxable treatment specifically where the buyer is not a GST/HST registrant at the time of the sale.
Yes. The resulting lease's term, rent and renewal rights need to be negotiated at the same time as the purchase agreement, not afterward, because the seller becomes the buyer's landlord and has full leverage once the purchase price is already set.
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