Small Claims Court Limit Increase

Effective January 1, 2010, the limit for claims in Ontario small claims courts has increased from $10,000 to $25,000. With the process being relatively user friendly, and not requiring a lawyer, I would imagine the number of claims will increase significantly, providing access to justice for people who may have otherwise declined to pursue a claim due to legal costs. For businesses, this means larger accounts receivable, for instance, can be collected through this process, with few upfront legal expenses. Good news for the small business community.

Non-Competition Covenants

When an employer hires an employee, they are often concerned with what might happen if that employee was to leave and work for a competitor or start a competitive business. Quite often, employment agreements will contain non-competition covenants which stipulate that, upon termination of employment for any reason, the employee agrees not to compete with the employer within a certain georgraphic region and a certain period of time. Difficulties can arise where these covenants are too broad, and not necessary for the reasonable protection of the employer's interests. Sometimes these covenants are entirely unenforceable. A good question to ask yourself, as an employer, is: can I reasonably protect my business by using a confidentiality clause (employee agrees not to disclose any confidential information of the business) and a non-solicitation covenant (employee cannot solicit the existing customers or prospects of the business). If your interests can be protected using these means, it may make sense to draft your employment agreement accordingly. Having an agreement that is both reasonable and enforceable makes good business sense.

Medicine Professional Corporations - fee break!

For those doctors out there with medicine professional corporations, you may be interested to know that fees for annual renewal of your license with the College of Physicians and Surgeons have actually been reduced. This is a rare occurrence indeed! Renewal fees for 2009 were $195.00 but this has been reduced to $125.00 for 2010. Nice to know something is going down in price!

Buying Shares

I have a client who sent me a Letter of Intent that she has received for the purchase of her business. It struck me, as I was reading through it, that the potential purchaser did not understand the ramifications of his own offer. He started out offering to buy all of the shares of the corporation that my client owns. But the body of the offer looked more like an asset purchase. He did not want to assume any liabilities of the business and he wanted to pick and choose which employees stayed on and have my client fire the rest and be responsible for severence packages. What this purchaser did not understand is that, if he is purchasing all of the shares of the company, he inherits the liabilities and employees. The corporation is a separate legal entity and it stays the same, regardless of who the shareholders are behind it. The upside is the purchaser can have a seemless transition where no one even has to necessarily know that ownership of the company has changed, the downside is that, with the company, comes its history, its liabilities, and its employee seniority. Knowing the difference between a share purchase and an asset purchase and assessing the pros and cons of each before making your offer, makes good business sense.

Selling Your Business - reps and warranties

If you are selling your business, you may be selling the assets or all of the shares of your corporation, but either way, the purchaser will likely want you to provide some representations and warranties with respect to your ownership of the assets, tax issues, employees, perhaps environmental warranties, etc. Depending upon the level of complexity of the transaction and the type of business being transferred, the reps could be as few as 5 or 6 and as many as 50 or 60. Either way, it is very important for a vendor to carefully read these representations and warranties to ensure that they are accurate and truthful. Often much of the negotiations around a transaction can centre around what reps and warranties will be given and whether they are limited to the knowledge and belief of the vendor or not. Make sure you understand what you are representing and warranting to a purchaser. If these statements are dishonest or inaccurate, a purchaser may have recourse against you after closing. Be sure to get legal advice about these items, prior to signing any agreement.

Thoughts on Investing in Real Estate - Part 3

So far we have discussed financing, tax issues, renting your property and zoning. The final piece of the puzzle is:

Insurance
Be aware that how the property is occupied can affect your insurance coverage. It is relevant whether the property is being owner occupied or occupied by tenants. If it is not occupied at all, your standard policy may not provide coverage unless the property is being visited / inspected weekly, or even daily. Make sure your insurance agent understands the uses to which the property is being put and that you understand the coverage that is being provided and what, if any, steps you are required to take to maintain the policy in force (i.e. hiring someone to check the property). If you are operating a business out of the property, make sure your broker is made aware of this. Commercial insurance will be different than purely residential insurance coverages. The more your insurance broker knows about the property and its proposed use, the better he/she will be able to assist you. Make sure you talk about insurance BEFORE you sign the Offer if you have any doubts about the insurability of the property, as you will not get financing without it.

These are a sample of the type of issues to be aware of when considering an investment in real estate. My recommendation is to get the experts involved from the beginning. Make sure your lawyer, accountant, mortgage broker, financial advisor and/or insurance agent know what you are doing. Take advantage of their education and experience. And then, enjoy your property.

Thoughts On Investing in Real Estate - Part 2

Here is Part 2 of Zarah Walpole's commentary on Investing in Real Estate. In Part 1, we learned about financing and tax issues. Now let's take a look at two other issues to be considered:

Renting
If you’re going to be covering some of your costs by renting the property to a tenant, you’ve become a landlord and will need to be conscious of landlord and tenant law. The law varies considerably whether you are renting a residential or commercial property. In either case, you need to know the rules that will apply to your situation. An absolute minimum requirement in either circumstance is to enter into a well drafted lease agreement. From a practical point of view, I cannot emphasize enough the importance of checking potential tenants’ references. Knowing how to legally evict a tenant is one thing, never having to do so is an even better thing.

Zoning
If you plan on changing the current use of the property (i.e. adding an apartment, putting in a business), it is vital to ensure that your proposed use is permitted. For example, municipalities have zoning by-laws that only permit commercial uses in certain areas. Here in Barrie, not only are basement apartments only permitted in certain zones but they also have to be registered with the City. Knowing the zoning of your property ahead of time and making sure that it fits with your plans is good business.

Stay tuned for the final part of our series on Investing in Real Estate.