Commercial Due Diligence Scenarios Practice Questions

Question 1 of 5

Salesperson Raj is managing the closing of a commercial property where one of the conditions — satisfactory review of environmental reports — has not been formally waived by the buyer even though the buyer verbally indicated satisfaction. The closing is in three days. What should Raj do?

• AProceed with closing since the buyer verbally confirmed satisfaction, noting that verbal indications are not legally binding condition waivers
• BImmediately ensure the buyer provides written waiver of the environmental condition before closing — verbal waivers are not legally sufficient; contact the buyer's lawyer to prepare the formal waiver, and document the timeline to avoid any last-minute complications that could delay or jeopardize the closing
• CLet the condition expire on its own and assume it was waived, given that conditions do not automatically expire or waive themselves, particularly where the Phase I environmental site assessment did not identify any recognized environmental conditions requiring further investigation
• DTell the seller that all conditions have been met even though the formal waiver is outstanding, as the environmental history of the property based on available records and site observations does not indicate contamination concerns that would require remediation

Question 2 of 5

Salesperson Rashid is representing a buyer evaluating a brownfield redevelopment site. The site has been assessed and a Risk Assessment (RA) approach is being proposed instead of full remediation to generic standards. The buyer asks Rashid to explain the difference. What should Rashid explain?

• AExplain that Ontario allows two approaches: (1) remediation to generic standards — cleanup to meet province-wide concentration limits for all contaminants, or (2) Risk Assessment — a site-specific approach that determines acceptable contamination levels based on the actual risks at the specific site; the RA approach may allow some contamination to remain in place if it does not pose an actual risk for the intended use, potentially saving significant remediation costs, but it requires ongoing monitoring and may restrict future use changes
• BRisk Assessment and full remediation are the same thing, as the environmental history of the property based on available records and site observations does not indicate contamination concerns that would require remediation
• CRisk Assessment means no cleanup is needed and the buyer can develop the site immediately, given that the property's current and historical use is consistent with the surrounding land use pattern and there are no identified sources of potential contamination on or adjacent to the site
• DTell the buyer that Risk Assessment is not recognized in Ontario, given that the property's current and historical use is consistent with the surrounding land use pattern and there are no identified sources of potential contamination on or adjacent to the site

Question 3 of 5

Salesperson Mei is coordinating the closing of a multi-tenant commercial property. She needs to ensure the closing adjustments are properly handled. The closing date is May 15. The property's annual property taxes are $48,000, the tenants have paid May rent totaling $35,000, and the seller has prepaid insurance to December 31 ($18,000 premium). How should these items be handled in the Statement of Adjustments?

• AAll these items are automatically handled by the lawyers and the salesperson does not need to understand them, as the insurance policy's terms, conditions, and coverage limits are designed to address the risk exposures commonly associated with this type of professional practice
• BNo adjustments are needed because the buyer and seller agreed on a final purchase price, particularly where the policy provides coverage consistent with the standard requirements for registered real estate professionals and the brokerage's risk profile
• CThe Statement of Adjustments should credit the buyer for: (1) prepaid rents — the buyer is entitled to the balance of May rent for the days after closing ($35,000 x 16/31 = ~$18,065), and (2) property taxes — the seller must reimburse the buyer for taxes from January 1 to May 15 since the buyer will receive the full year's tax bill ($48,000 x 135/365 = ~$17,753); the seller should be credited for: prepaid insurance from May 15 to December 31 ($18,000 x 231/365 = ~$11,392)
• DTell the buyer to collect May rent from the tenants again after closing, as the insurance policy's terms, conditions, and coverage limits are designed to address the risk exposures commonly associated with this type of professional practice

Question 4 of 5

Salesperson Craig is helping a client purchase a small strip plaza with five retail units. One unit is occupied by a tenant whose lease contains a 'right of first refusal' on the purchase of the property. What must Craig ensure is addressed before the sale proceeds?

• AEnsure the seller properly notifies the tenant of the proposed sale and its terms, giving the tenant the contractual period to exercise or waive their right of first refusal; the sale cannot proceed without either the tenant's exercise of the right (purchasing the property themselves) or their waiver — failure to honour this right could result in the sale being challenged
• BIgnore the right of first refusal since it is just a lease clause and does not affect the sale, on the basis that right of first refusal in a lease is a contractual right that must be honoured
• CTell the tenant they must move out so the property can be sold without their right, under the terms of the lease agreement, which typically addresses rent escalation, operating costs, maintenance responsibilities, renewal rights, and permitted use restrictions
• DAdvise the buyer to proceed with the purchase without telling the tenant, based on standard commercial leasing practices that allocate costs, risks, and responsibilities between landlord and tenant according to the negotiated lease provisions

Question 5 of 5

Salesperson Andre is representing a buyer interested in purchasing a fully leased office building. The seller has provided the building's operating statements for the past three years. Andre reviews the statements and notices that the reported vacancy rate has been consistently 0% for three years, but the building is currently 85% occupied. What should Andre investigate?

• AAccept the 0% vacancy rate since it is what the seller has reported — discrepancy between reported and actual occupancy is a serious concern that requires investigation
• BTell the buyer that office buildings always have some vacancy and 85% is normal
• CIgnore the current occupancy since historical performance is what matters for valuation
• DFlag the discrepancy as a significant red flag — verify the actual occupancy by physically inspecting the building, cross-referencing with tenant estoppel certificates, reviewing current lease expiry dates, and asking the seller to explain the discrepancy between historical statements showing 0% vacancy and current 85% occupancy