Mini Cram 5 PDF

MiniCram Real Estate Exam - Commercial
MiniCram Real Estate Exam

The Commercial Real Estate Transaction
Study Notes & Practice Questions
UPDATED – 2019 Exams
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The information contained in this publication is essentially a summary, for the only purpose of
review of key concepts for exam preparation and is not intended to replace direct research or original source
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Acknowledgements
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MiniCram Notes 2
TABLE OF CONTENTS
Copyright
Table of Contents
Introduction & Exam Format
10 Tips for the Exam
PART I – STUDY NOTES
1. The Office and Retail Market
2. Industrial Land and Buildings
3. Multi-Residential, Farmland and Recreational
4. Investment Properties
5. Selling a Business
6. Commercial Leasing
7. The Agreement to Lease - Commercial
8. Understanding Commercial Lease Clauses
9. Trends and Issues
10. Common Errors
11. Becoming a Salesperson
PART II – MATH CONCEPTS & COMMERCIAL AGREEMENTS
Basic Commercial Math
Agreement of Purchase and Sale – Commercial
Agreement to Lease – Commercial
PART III – PRACTICE QUESTIONS
Sample Exam 1
Quick Answer Key
Sample Exam 2
Quick Answer Key
Sample Exam 3
Quick Answer Key
Sample Exam 4
Quick Answer Key
PART IV - DETAILED ANSWERS
Sample Exam 1
Sample Exam 2
Sample Exam 3
Sample Exam 4
MiniCram Notes 3
INTRODUCTION
Congratulations on purchasing our MiniCram for Ontario Real Estate License Exam
preparation. The purpose of this book is to provide you with last minute review of important theory
and math concepts for the exam.
This booklet has been written so that you can focus on key areas of study as well as
practice sample questions to overcome the most common mistakes that students make on the
actual exam.
How to Use This MiniCram
You do not have any time to waste. This MiniCram booklet is designed in such a way that
your review for the exam is fast paced. It is suggested that you go through each topic one by one.
It is assumed that you have already covered the topics either in the actual class or by self-study.
We Want to Hear from You
This book is written by a practicing professional. If you have feedback for the author, want
to submit a question, report any mistake in the book, need more information or have general
comments, please send an email to [email protected].
We hope that this book will prove to be helpful for your exam preparation. Good luck for
the exam!
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EXAM FORMAT - THE COMMERCIAL REAL ESTATE TRANSACTION
This 3-hour exam consists of a total of 50 Multiple Choice questions. Minimum 75% marks
are required to pass the exam. For your reference, blank or completed agreements would be
provided in the exam. The breakup of marks is as follows:
First 12 Questions 1 Mark Each 12 Marks
Next 26 Questions 2 Marks Each 52 Marks
Last 12 Questions 3 Marks Each 36 Marks
Total Questions – 50 100 Marks
In case of paper exam, the exam booklet is separate from the answer sheet, which is a
machine-readable Scantron® sheet. The answer sheet is to be filled up with pencil only. On an
iPad exam, you may navigate the pages using the ‘Next’ and ‘Previous’ buttons.
For more information on the exam, visit the official website at www.orea.com.
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Back to Table of Contents
MiniCram Notes 4
10 TIPS FOR THE EXAM
1. RELAX! Too much anxiety, panic, stress and fear are big distractions. Focus on the
question and choose the best answer.
2. GAME OF WORDS. All multiple-choice exams are merely variation of words. If you
know your course materials, it's only a matter of interpreting the question and then
selecting a correct option.
3. EASY ONES FIRST. In this exam the first 10 questions are easy, simple and
straightforward questions. Do these questions first. If math is your weakness start with
these easy the questions.
4. READ ALL OPTIONS. Even if you think A is the correct answer, read options B, C and
D to make sure they are incorrect.
5. MANAGE YOUR TIME WISELY. Divide it according to marks for each question. Do
not spend too much time on 1-mark questions. Skip the question that you think is
difficult to answer. Mark it for review and proceed to the next one.
6. EXTREME PHRASES. Beware of absolute words in any option such as ALL,
ALWAYS, NEVER, MUST, NONE, EVERY, EXACTLY, ONLY, etc. In most cases, the
options that include any of these words are rarely correct.
7. HEDGE PHRASES. When a question asks you to conclude something and includes
words such as MAYBE, LIKELY, OFTEN, ALMOST, USUALLY, GENERALLY,
TYPICALLY, SOMETIMES, etc. Do not pick any answer that does not leave any room
for exception.
8. ALWAYS read the question twice. You must know what information is given and
exactly what is being asked. More than one choice may seem to be correct if you do
not understand the question properly. If that is the case use the method of elimination.
9. REMEMBER that your first instinct is mostly a correct answer. Be careful when
changing your answer but don't be afraid if you must change it.
10. REVIEW. Make sure you did not skip any question and the answer sheet is neatly filled
in. Never mark more than one answer. If you need to change a marked answer erase
the previous one nicely. Otherwise, the machine may not be able to scan your answer.
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MiniCram Notes 5
PART I – STUDY NOTES
1. THE OFFICE AND RETAIL MARKET
1.1 The Office Market
Market Indicators
• Available Office Space: Total square footage available for lease.
• Inflow of New Office Space: Total square footage recently made available.
• Absorption Rate: The monthly or annual rate at which office space is leased or occupied.
• Net Absorption Rate: The Net figure is more reliable and shows the total office space leased
less space vacated during the period.
• Vacancy Rate: The percentage of unleased or unoccupied office space vs. the available
space.
• Rent Rate: Rent per square foot. Net Rent Rate is preferred as taxes, maintenance and
other operating expenses are considered.
• Natural Vacancy Rates: This refers to normal Vacancy Factor when rents are at Equilibrium,
negotiations do not affect rental rates. Rents are low above Equilibrium and high below
Equilibrium.
Building Classifications
• Class A: These are premium buildings in prestige locations with high-tech systems and
high-quality finishes. They are typically occupied by banks, international corporations and
large legal firms.
• Class B: These buildings are found in good locations, have average building materials and
construction, they are well maintained, and have adequate internal systems.
• Class C: These buildings are found in less desirable locations, may need renovations, they
may not have modern technology systems in place. The advantage is that they offer low
rents and are affordable in comparison to Class A or Class B buildings.
Office Condominiums
• Condominium units are taken by smaller tenants who seek independence from occupancy
costs and landlord controls.
• The office unit size varies between 750 and 1500 square feet and includes on-site parking.
• These offices may have shared utilities such as boardroom, reception, video surveillance,
entry systems and telephone systems.
1.2 Zoning By-Laws
Tax Perspective
• Office buildings generate employment and tax revenues for the municipality.
• They create a buffer between industrial, retail commercial and residential areas.
• From planning perspective, the main considerations are conformity with existing structures,
parking space, municipal services, transportation and accessibility.
MiniCram Notes 6
Restrictions
• Restrictions are imposed through Zoning By-laws and Land Use Control.
• They affect the Gross Floor Area, maximum building height, permitted use, setbacks and
maximum lot coverage.
• Restrictions are typically found in agreements between the developer and the municipality.
• Floor Area Ratio (FAR): This ratio is expressed as total floor area of building in relation to
total land area.
• Both Floor Area Ratio and height restrictions impact the Gross Leasable Area which, in turn,
affects the cash flows and returns.
1.3 Office Building Construction
Design and Layout

• Structural design and layout is regulated by Ontario Building Code (OBC).
• Regulations are focused on structural strength, integrity, acoustic separation, means of exit,
sanitary conditions, prevention of heat loss (insulation), water intrusion (damp-proofing) and
moisture (vapour barriers).
• Ontario Building Code Part 9: Housing and Small Building code applies to buildings between
10 square metres (108 square feet) and 600 square meters (6,460 square feet) and up to 3
storeys in height.
Smaller Buildings
• Small commercial buildings may use economical wooden framing while meeting standards
for loads and fire separation between units.
• Drywall materials provide the necessary fire safety ratings.
• Masonry concrete walls may be used along with wood framing in large commercial to more
effectively separate units.
• Common areas such as stairs may also be of concrete blocks or poured concrete.
Larger Buildings
• The structure of typical large office buildings is made of steel, concrete or a combination.
• Steel structures are flexible and effective in handling wind load and seismic activity.
• High-rise steel structures are supported by strong heavy weight steel framing made of
columns and I-beams, upon which floor and wall materials are installed.
• Light-weight steel is used for internal framing and for smaller buildings.
• Concrete is preferred because steel becomes soft at high temperatures and needs some
passive, fire resistance material for encasing.
• Reinforced concrete buildings are broadly categorized into cast-in-place (poured in place),
which is cost-effective or precast and delivered to the job site for installation.
• Concrete cast-in-place (concrete framed) buildings can withstand high temperatures for
long periods and have strong resistance to explosions.
Building Core
• The central component of the building which has provisions such as toilets, elevators,
janitor’s room, closets, utilities, mechanical facilities and stairs.
MiniCram Notes 7
• Center-Core designs for multiple tenant building and attracts companies who prefer outside
windows for management executives while internal areas is used by staff.
• Side-Core designs are off-centre and suited for single tenant where most staff has similar
functions.
Floors
• Floor Plate design depends on needs of the tenant, leasing depth, particularly the distance
from either the center core or corridor.
• Zoning setbacks and Ontario Building Code requirements also affect floor plate design.
• Floor Height directly impacts costs which increase when floor-to-floor height increases.
• Floor-to-Ceiling Height is the distance from top of one floor to the top of the next floor.
• Sandwich space is the space between the finished floor and the dropped ceiling.
Exterior Curtain Walls

• They span multiple floors, while allowing for building movement and expansion, effectively
sealing exterior and providing thermal efficiency for heating and cooling.
• These continuous systems typically consist of glass inserted in aluminum or stainless-steel
framing.
• High-performance glass with special coatings minimize glare and reflect long-wave
radiation.
• Low-E glass contains a thin metallic layer to allow filtered sunlight inside the building during
winter while retarding outward flow of heat.
• Double-glazed and Triple-glazed windows may have inert gas fill (Argon or Krypton)
between panes to reduce heat or cold transfer.
Life Safety Systems

• These systems are regulated under Ontario Fire Code for safety of occupants during
emergency situations. The size of the building and its use determines requirements.
• Typical systems include use of fire detection and alarm, emergency communication
systems, strategically placed firewalls, automatic door closures, emergency lighting,
ventilation, auxiliary power and sprinkler systems.
1.4 The Retail Market
Structure of Retail Market

• Large Merchandisers: They negotiate better prices from suppliers with big orders and this
results in cost savings to consumers. They use hi-tech distribution centers, retail tracking
systems, self-check-out systems and improved customer service.
• Supply Chain: Include Bar Code systems and Radio Frequency Identification (RFID) for
efficiency, consumer access to product info and interactive shopping.
• Online Retailing: This has impacted retail business with retailers and online distributors in
direct competition, but the consumer has to negotiate.
Retail Classifications
• Retail standards are governed by North American Industry Classification System (NAICS)
and the classifications are based on type of product.
MiniCram Notes 8
• Big Box Stores: These stores look like warehouses with minimum interior finishes. They buy
inexpensive large industrial lands and get it rezoned for development of a store that sells
everything.
• Power Centres: Several big box stores are located at one place. Category Dominants or
Category Killers are those stores which sell a specific product.
Shopping Centres
• Regional Shopping Centre: These are typically enclosed and there are two or more anchor
tenants (crowd pullers).
• Community Shopping Centre: These are usually L-shaped or U-shaped, located near main
arterial roads or at town centers and have one or two anchor tenants to attract customers.
• Neighbourhood Shopping Centre: These are small retail centres which generally have
convenience stores, grocery store, laundry, pizza, small restaurant, dollar store, etc.
Miscellaneous Retail
• Lifestyle Centres: These are smaller than Regional Shopping Centers but provide an open-
air, village like shopping for upscale consumer with reduced maintenance expenses.
• Downtown Shopping Malls: Malls such as Eaton Centre revitalize downtown shopping
within large metro center.
• Outlet Malls: These malls have brand-name retailers and factory outlets and typically
attached to some warehouse to sell returned or surplus goods at a low price.
• Main Street Retail: They have a blend of old and new by creating a tenant mix of boutiques,
convenience stores, travel agents, coffee shops, offices, fruits and vegetables, and other
businesses.
• Freestanding (Single-Use) Buildings: Gas stations, banks, restaurants, etc. prefer single
use buildings for greater vehicular exposure, visual separation and a separate identity.
Mixed-Use Developments
• Single Master Plan: Mixed-use developments involve three or more standalone, profit
making uses such as retail, office, residential, entertainment, etc.
• Complex Design: Proper planning and integration of diverse uses is critical for mixed use
developments and may include even big box stores.
• Vertical Mixed-Use Buildings: Town Centre mixed use designs include parks, pedestrian
walkways, benches, fountains and public squares integrated into an urban landscape.
Ground Lease
• This refers to a long-term lease of land to a tenant for building a retail structure.
• The building itself serves as a security for rent payments.
MiniCram Notes 9
• By this method the tenant can leverage existing finances and use the property as if it is
owned.
• Disadvantage is that the landlord may not permit expansion.
1.5 Retail Planning and Zoning
Planning Considerations
• Market Position: This refers to the fact that consumers are attracted by a limited number of
businesses. This is why smaller retailers want a location close to larger shopping complexes
to attract customers.
• Range: Range refers to maximum distance that a typical consumer will travel to buy a
specific commodity.
• Competition: A shopper will go to closest location if competitors are offering the same
product at a similar price.
• Clustering: Mix of tenants in a retail centre is preferred by consumers because several items
are available at a single destination.
• Threshold: Businesses evaluate minimum population densities (threshold) required to
support a specific retail business.
Zoning Requirements
• Municipalities must create and update Official Plans and draft zoning provisions that
encourage a competitive, healthy retail sector and preserve existing commercial resources
and at the same time, not inhibit new retailing formats or dampen competition for consumer
choice.
• Zoning categories use sequential numbers (C1, C2, C3, etc.) or they may be location
specific.
• Buildings activities must meet setback requirements, parking width and depth and, minimum
separation from residential zones.
• Off-street parking allowed is typically based on retail use and gross floor area.
• Gross Floor Area is the total area of each above grade floor in the building.
• Site Plan Control ensures that retail buildings adhere to The Planning Act, Official Plans
and Zoning By-laws.
• Site Plan Control Areas are designated by local municipality.
1.6 Retail Construction
Masonry and Concrete

• Smaller retail buildings have load-bearing masonry walls with light weight internal steel
framing.
• Masonry wall height is determined by concrete block size which may or may not be
reinforced.
• Masonry walls increase the thermal mass of the structure and are energy efficient.
• Concrete Tilt-up Wall (Tilt Wall): These walls use large wall panels that are poured on-site
and raised into position by cranes.
• Pre-cast Wall: These walls are made off-site and transported to site.
MiniCram Notes 10
• Internal Concrete Form (ICF): These structures are built using polystyrene forms that are
assembled according to the shape of exterior walls.
Steel Buildings
• Small buildings use lightweight steel which can be assembled quickly on site.
• Steel is more cost effective but can bend easily and lose its strength when exposed to
extreme heat and high temperatures.
• Because of this reason, steel buildings require additional fire-retardant materials such as
gypsum board, wraps or blankets.
• Modular Standalone Structures: These are easy to install, pre-built steel modules which
include all framing and a pre-poured floor.
• The benefits include quick assembly, theft protection, few sub-contractors, flexibility to
easily relocate or expand structure, etc.
Parking Garages
• Parking requirements depend on available land size and cost.
• Standalone buildings have on surface parking while structured parking is necessary in larger
complexes.
• Parking garages are typically built using beams and columns, along with pre-cast, pre-
stressed slabs which form the parking deck.
• Some garages are constructed with pairs of interwoven, one-way spiral ramps.
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MiniCram Notes 11
2. INDUSTRIAL LAND AND BUILDINGS
2.1 The Industrial Market
• The industrial market includes vacant land and buildings used for manufacturing
(production), storage (warehousing) and distribution of commercial goods and services.
• Investor vs. User: Investors need large and long-term credit-worthy tenants while Users are
inclined more towards location, access and visibility to the property.
• Derived Demand: Demand is based on specific functions. Distributors focus on
transportation corridors, time/distance factors and freight rates. Manufacturers concentrate
on distance to raw materials, availability of energy for manufacturing and availability/cost of
labour. Market based industries look for closer customer base.
• Existing Structures: Existing buildings are often converted into smaller affordable rental
units for newer industrial tenants who will ultimately grow and move out.
Industrial Building Categories

• General Purpose: These buildings have facilities for different types of uses and are most
common.
• Special Purpose: These buildings appeal to selected industries such as buildings with
loading docks. These buildings have narrower applicability than General Purpose.
• Single Purpose: These buildings have little appeal, are expensive to convert and are difficult
to market. Oil refineries or heavy industrial uses are in this category. Appraisal is
challenging.
Valuation of Industrial Property

• Appraisers provide cost estimates using Per Square Foot or Per Buildable Square Foot
method using land cost and building cost (hard costs and soft costs).
• Hard Costs: These costs include cost of site preparation (excavation, fill, landscaping,
asphalt, curbs, etc.), structural, mechanical and electrical components.
• Soft Costs: These are costs incurred in consultation, project management, financing, legal
and connection charges.
• Land Costs: The cost of land is typically quoted per square foot using the total square
footage of the site. Some brokerages prepare reports based on per buildable square foot.
• Investor Return: Return is the relationship between rental income per square foot and total
cost per square foot.
Design Build
• Design Build is an agreement between a land owner and a tenant to build a structure
according to the requirements of that tenant.
• This is popular in seller’s market when the demand for industrial land is high and availability
is low.
• These options require a detailed analysis of tenant requirements, building size and costing
estimates along with lease vs. own options.
• Involvement of commercial brokerage includes activities related to detailed costing
estimates for land and building as well as financing costs, real estate commissions, closing
expenses, cash flow projections, present value estimates and internal rates of return.
MiniCram Notes 12
Sale/Leaseback
• Sale/leaseback arrangement involves the sale of property by an owner to an investor and
leasing it back from the buyer.
• The seller liquidates his equity in the property for use with other projects while retaining the
location under a long-term lease.
• The buyer as investor is assured of a long-term lease and cash flows.
• The seller may have the option to buy it again after lease is over.
2.2 Requirements for Industrial Sites
Community Profile
• Industrial users consider site requirements (zoning restrictions, services, transportation,
etc.) from community, regional and provincial perspective.
• Labour intensive industrial uses require information on wage levels, availability of skilled
labour, facilities and public transportation to the site.
• Sources of information include local development offices, demographics, labour statistics,
private employers, transportation, quality of life issues, financial services and real estate
profiles.
• Industry Canada’s ‘Strategis’ website provides both business and consumer resources.
Availability Factors
• Land Acquisition and Retention: Mainly driven by economic development commissions
while municipalities also purchase land to exercise control on types of industry.
• Zoning Requirements: Define the scope and mix of industrial activities, encourage
competitive uses, set height and size limitations, and density requirements.
• Site Availability and Expansions: Related to servicing extensions (water, sewer and
transportation) for raw industrial lands with the help of improvement funding by local
government.
2.3 Industrial Zoning
Zoning Provisions
• Zoning By-laws and permitted uses vary by municipality and are grouped in terms of general
and heavy industrial uses.
• Zoning classification sets out requirements for specific uses, lot frontages, lot areas and
minimum front, side and rear yards.
• Permitted industrial uses typically include manufacturing, warehousing, research and
training facilities, transportation terminals, public works depots, contractor yards, service
and repair operations, electric power facilities and auto service establishments.
• Industrial activities also include manufacturing, fabrication, assembly, processing and
packaging of products.
• Heavy Industrial Use involves refineries, brick, tile or clay production, blending tar or
petroleum for roofing, paving activities, tanneries, rendering chemicals, heavy equipment
manufacturing, meat packing and bulk storage of chemicals, fuels, etc.
• Industrial Park: It is a controlled development designed as a buffer between heavy industries
and residential areas.
MiniCram Notes 13
Single-Use vs. Multi-Use

• Single Use industrial buildings are usually standalone structures. Modern industrial areas
are dominated by large multi-use buildings to attract leasehold tenants.
• An Industrial Mall is often set up as a condominium with individual units, common parking
and loading facilities.
• In Vacant Land Industrial Mall Condominium, the developers divide and sell lots without the
need to create a subdivision.
2.4 Typical Building Components
Construction
• Free standing buildings typically include both a main industrial area and an office area.
• Industrial structures are usually made with concrete blocks, poured concrete, steel or their
combinations.
• Steel structures are now preferred for single-storey small and medium sized industrial
buildings. Pre-engineered steel structures are manufactured at a factory and are cost
efficient.
Features and Characteristics

• Bay: The smallest division of unfinished floor area between columns and bearing walls.
• Bay Depth: The distance from the bearing wall to a row of columns or between columns.
• Span: Floor area that is clear of interference of columns and walls.
• Clear Height: The unobstructed distance from floor to the ceiling.
• Cranes: Bridge Crane operates on a system of horizontal rails and needs column free areas.
Gantry Crane is a portable bridge crane operating on wheels and can be moved on floor or
outside. JIB crane has an arm attached at an angle to a mast and can rotate 360 degrees.
• Roofing: Flat Roofs have some slope for water drainage and must be water tight. A Built-
up Roof (BUR) consists of asphalt, felts and gravel.
• Floor Load: Consists of two types –
➢ Live Load consists of weight of people, equipment and materials.

➢ Dead Load refers to the weight of structural materials.
• HVAC: Heating, Ventilation and Air-conditioning (HVAC) systems consist of Air Handler,
Condensing Unit, Duct work, Roof Top HVAC, Unit Heater, etc.
• Loading Dock: These are at truck level height and typically found in commercial and
industrial structures.
Sprinkler Systems
• The term Sprinklered refers to a building that has a built-in sprinkler system.
• Sprinklers are interconnected pipes, risers, mains and sprinkler heads and uses water.
• Automatic systems are controlled by smoke alarms or heat sensitive detectors.
• Wet Pipe: Fitted with water under pressure and released when a plug melts at high
temperature.
MiniCram Notes 14
• Dry Pipe: It has compressed air extending from sprinkler head to a dry pipe valve. It releases
water when the plug melts and air pressure drops.
• Pre-Action: This system contains air under pressure and water is released when heat
activated device is operated by a valve.
• Deluge: This system uses large quantities of water for unusual fire hazards.
Transformers
• Pole Transformer: Located on a pole near the street and is used for small service sizes
under 600 Amp.
• Mat Transformer: Within a large cabinet located on ground next to the building.
• Pad Transformer: Combination of several mat transformers installed on a pad.
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MiniCram Notes 15
3. MULTI-RESIDENTIAL, FARMLAND AND RECREATIONAL
3.1 Multi-Residential Buildings
Demand and Supply

• Multi-residential: Any residential structure that has more than one dwelling unit.
• Smaller residential buildings such as duplexes, triplexes, fourplexes, etc. are excluded.
• From regional perspective, expanding employment opportunities normally translate into
increased housing demand.
• Rising income levels dictate potential price points for various types such as studio, one, two
and three-bedroom apartments.
• Demographics such as in-migration and out-migration, overall population growth also help
in analysis.
• Proximity to schools, transportation and nearby retail services, as well as amenities in the
building also attracts people.
• Analysis of existing competition, as well as new buildings currently approved or under
construction.
• Rent levels and what is and what is not included in the rent, condition of property, basic
features (above and underground parking, balconies, park areas and access control
systems), elevator, exercise room, swimming pool, entertainment rooms and location
features are also considered during analysis.
Impact of the Residential Tenancies Act

• The Residential Tenancies Act (RTA) provides protection to tenants.
• Decision for acquisition or development must consider annual Rent Guideline published by
provincial Ministry of Municipal Affairs and Housing.
• Other provisions include Vacancy De-control, procedures for recouping capital
expenditures, rights of entry by landlord, notice periods for termination of tenancy, etc.
• These provisions impact cash flows, rates of return, upgrading existing structures and
ongoing investment/management decision making.
Zoning
• Residential zones are identified as R1, R2, R3, etc. with multi-residential zones in range R6
or higher.
• All multi-residential buildings must comply with Ontario Building Code and construction
methods depend on the size which may be low-rise, mid-rise or high-rise.
• The zoning provisions include minimum lot area, frontage and floor area; maximum lot
coverage and height; minimum front, side and rear yard setbacks; units per hectare, parking
allocation per unit; and landscaping minimum given in percentage of total lot size.
• Infill Zoning Requirements –
➢ Infill zones are typically found in inner city neighbourhoods.

➢ The purpose is to lessen urban sprawl within existing urban areas, increase in density
and better utilization of existing municipal infrastructure.
➢ Municipal planning officials compare a proposed project in comparison to surrounding
built-up areas.
MiniCram Notes 16
➢ Planners prefer multi-residential projects that have a low profile with density, height,
setback and built form that is sensitive to surrounding built-up areas.
Multi-Residential Agreement
• A large multi-residential building is considered a Business under the Real Estate and
Business Brokers Act 2002.
• Sale of Business Affidavit: This statement under oath must be provided to buyer in case
seller does not provide financial statements.
• The Agreement of Purchase and Sale - Commercial typically includes information on
tenancies and copies of all leases or a condition is included to deliver these documents a
specified time period.
• Confidentiality Clause: This clause is typically included the agreement as buyer needs to
review a number of business documents.
• Notice to Tenants: Notices for rent increases must be as per Rent Guidelines and such
notices may fall within the period between offer acceptance and closing.
• Tenants must be informed by the seller about change in ownership and to pay all future
rents to buyer.
3.2 Agricultural and Farm Land
• The term agriculture refers to the production of goods through farming.

• A farmer is described as an individual, corporation, co-operative, partnership or other
association that is engaged in farming for commercial purposes.
• Farming is defined in the federal statute, Farm Debt Mediation Act as-
➢ The production of field-grown crops, cultivated and uncultivated and horticultural
crops;
➢ The raising of livestock, poultry and fur-bearing animals;
➢ Production of eggs, milk, honey, maple syrup, tobacco, fibre, wood from wood lots
and fodder crops; and
➢ The production or raising of any other prescribed thing or animal.
Evaluation of Farm Market

• Location factors include proximity to target market, accessibility by roads and availability of
services.
• Land Value is usually based on agricultural productivity and soil fertility.
• Crop Heat Units (CHU) is important for crop selection and in estimating productivity.
• Time period for crop maturity generally depends on temperature, soil fertility and moisture
levels in soil. The type, age and condition of structures and equipment also affect value.
• Farm Quotas and government programs and incentives can impact value.
Farm Quotas and Marketing Board

• Farm Quotas affect the value of farm property and a dairy farm may have little value in spite
of large production if farm quota is not assigned.
• Marketing Boards are governed by farmers.
• Negotiating Boards negotiate the minimum price paid to producers.
• Boards with Authority to Establish Price set the price paid to producers but cannot limit
production.
MiniCram Notes 17
• Boards Regulating Production and/or Marketing Using Quotas can establish exact quotas
for each farmer.
Farm Land Leasing

• Under lease terms, the landlord provides the farm land and storage facilities, and pays for
property taxes.
• The tenant pays the expenses for supplies, labour and machinery for farming.
• Crop Share lease: Most common division of income is one-third share of all crop sales goes
to the landlord.
• Cash Rent Lease: The tenant pays a fixed amount to landlord but receives all income from
the crop sales.
• Flexible Cash Lease: The tenant receives all income from crop sales, but the amount paid
to landlord varies with either the price of the grain, the yield of the grain, or both.
Farm Land Zoning

• Zoning provisions prevent the farm land from being converted to non-farming uses.
• Agricultural Use refers to the use of land involving the tillage of soil, growing and harvesting
of vegetables, field crops, tender fruits and other cash crops.
• Dairy operations, breeding, grazing, boarding and training of livestock activities are also
termed as agricultural operations.
• It includes buildings involving manufacturing, processing and servicing establishments that
support agricultural uses.
Farming and Food Production Protection Act (FFPPA)

• The law provides farmers protection from nuisance complaints and lawsuits on injunctions.
• It also ensures that farming and food production industry is protected from restrictive
municipal by-laws that constrain normal farm practices.
• Normal Farm Practices Protection Board is established under this law to decide on
complaints.
Construction
• Ontario Building Code and National Farm Building Code of Canada specify requirements
for construction of farm buildings for farm equipment, production, storage and processing
of agricultural products and for housing livestock.
• A site investigation may be necessary to assess soil conditions.
• Zoning by-laws will set out minimum building setback requirements.
• Minimum Distance Separation (MDS): MDS-I is the minimum distance between new
development and existing livestock or storage facilities. MDS-II is the distance between
livestock or storage facilities and houses.
Nutrient Management Act

• This act regulates storage, handling, use and transportation of commercial fertilizers.
• Commercial farming industries are required to document and retain records relating to
Nutrient Management Plans (NMP) and Nutrient Management Strategies (NMS).
• The act also specifies minimum distance requirements regarding land applications (i.e.
fertilizers) to protect adjacent land and water sources.
MiniCram Notes 18
Miscellaneous Issues
• Tile Drainage: It removes excess water from crop roots and increases crop output. Farmers
may be eligible for Tile Loan Programs under the Tile Drainage Act, approved by local
municipality.
• Dams, Drains and Diversions: These activities fall under the Lakes and Rivers Improvement
Act enforced by Ministry of Natural Resources (MNR) and a Work Permit may be required.
• Soil Testing: Used to determine the type and amount fertilizers for the soil for best crop
production. Ministry of Agriculture, Food and Rural Affairs has an accreditation program.
The success of test depends on number of samples, which are usually taken every two or
three years.
Sale of Farm Land- Buyer Considerations

• Resident Status: Is the buyer a non- Canadian citizen or a non-resident and will the buyer
be able to generate certain level of income?
• If the buyer and the property qualify, has the buyer registered under the Act?
• Registration Deadlines: If the sale closes after September 1st, the buyer may lose the
benefits of the reduced rate. If the sale closes before September 1st, the buyer can register
prior to the deadline.
• Property Taxes: Ontario farmers receive 75% tax reduction for municipal taxes if the
property is assessed as farmland and if they-
➢ Continue the farming business,

➢ Are Canadian citizens or permanent residents,
➢ Have Farm Registration Number, and
➢ Annually submit the appropriate application.
• Income Tax: Farm land is treated similar to improved real property. Capital Gain is subject
to tax on seller’s income (50%). Previously claimed Capital Cost Allowance may also be
Recaptured.
• HST: Personal use farm land may be exempt from HST if it is sold to a related individual
who will continue the use.
3.3 Recreational Properties
Types of Recreational Properties

• Small Recreational Business: These properties on lakeshores mainly offer boating facilities.
• Wilderness Camps: These are camps for fishing and hunting with required fishing licenses.
• Bed and Breakfast (B & B): These operations are regulated by local Bread and Breakfast
Association and are typically located in private residences.
• Ski Chalets/Small Lodges: These businesses offer facilities for skiing, snowboarding,
snowshoeing, skating and sleeping accommodation.
Hotels, Motels, Lodges and Resorts

• Market Analysis: The demand is determined by occupancy levels for a particular locality or
region based on travelling preferences of consumers.
• Hotels/Motels: Motel is a building in which accommodation and meals are provided. Large
hotels rely on analysis and market studies; smaller hotels focus on individual fact finding.
MiniCram Notes 19
• Boutique Hotels: This is a luxury and expensive accommodation market catering to lifestyle
preferences such as wellness and SPA facilities.
• Lodges: A lodge primarily consists of an inn with cabins or cottages offering four or five-star
accommodation including golf courses, on-site SPA, pools and fitness centres. Lodges are
associated with accommodation, while resorts provide recreation as well
• Resorts: Resorts usually offer four or five-star accommodation and may have golf courses,
on-site spa, fitness centre, indoor/outdoor pools, etc. A resort may be a Resort on a Lake
or Resort Town or Resort Area.
Planning and Zoning

• Municipal B & B licensing requirements are generally very stringent and renewable annually.
• They must also be in compliance with zoning by-laws, the Ontario Fire Code and selected
health regulations.
• Waterfront areas must comply with lot sizes and frontage requirements.
• Environmental matters are also significant issues.
• Older lodges are being updated and expanded to include housing options, recreational and
community-based facilities and limited commercial/retail services.
• Municipalities generally try to maintain the historic character of older resorts.
• Amendment to the Official Plans may be required.
3.4 Land Development
Development Land
• Vacant industrial land commercial market is primarily focused on development activities.
• Land technically refers to raw acreage or unimproved land, no alternation and services may
also not be available.
• Site refers to a parcel of land that is often serviced to some extent, may have been
subdivided and a building can be built with minimum time frame.
Planning Act Considerations

• Local municipalities use their Official Plans to enforce the Planning Act requirements for
development of industrial land.
• Zoning By-laws define industrial zones and set aside land for specific purposes and uses.
• Municipalities must ensure that Provincial Interests given in the Provincial Policy
Statements are consistent with Zoning By-laws.
• Public meetings are also required to get public opinion in regard to new developments.
• In case of a dispute between a developer and a municipality, the Ontario Municipal Board
hears applications and appeals for proposed development projects.
Land Development Application

• The application process begins with consultations between developers and municipal
planning departments before submitting the application.
• Typical process involves amendments to Zoning By-law or the Official Plan, Draft Plan
approvals (subdivision or condominium) and/or Site Plan applications.
• The application must include drawings (survey & site development plan).
• A Joint Development Agreement and Site Plan Control Agreement are negotiated for Work
Permits.
MiniCram Notes 20
Required Studies
• Water - A Hydrogeological Report may be required to confirm water capacity in the serviced
area.
• Sewage - Confirmation of sewage capacity along with a Hydrogeological Report would be
required to assess effects of water contamination.
• Storm Water - A preliminary and formal storm water management plan is normally required.
• Environment - Assessment provides impact of proposed activities on environment and
existing sites may require remedy of some environment hazard.
• Municipal Engineering - This involves study and technical analysis of existing municipal
infrastructure and impact of the project on existing services.
• Acoustics - This involves a study of noise effects from the proposed project.
• Urban Design - Expertise is required to develop an effective streetscape.
Development Agreement
• A Land Development Agreement is required as a condition for approval of Amendment
Application (Zoning By-law or Official Plan).
• The agreement sets out development requirements, development charges and bank
guarantees to ensure proper provision of services.
• Local improvement and development charges may also be payable.
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MiniCram Notes 21
4. INVESTMENT PROPERTIES
4.1 Investment in Commercial Property
Advantages
• The investor gets an opportunity to grow capital.
• Additional equity can be built up by reducing the mortgage debt over a period of time.
• The rate of return is higher as compared to other investments.
• Investment properties offer higher than usual personal control on investment.
• Tax sheltering helps in reducing tax liability.
• The investment has physical presence in the form of land and building as opposed to just
commercial documents as in case of stocks.
• Use of Leverage can help limit the investment required
• The property can be refinanced after certain period to recover initial investment.
• The property can be divided to create additional estates.
Disadvantages
• A large capital investment is required as opposed to residential properties.
• Lack of Liquidity is a major problem as it takes time to sell the property and recover
investment.
• The expenses incurred in administration and management of property may be high.
• Realty commissions and legal expenses during sale may be significant.
4.2 Decision Making
User
• A User is primarily interested in good location, easy access and visibility.
• Buyer’s interests in use of property are important.
• Improvements in the property must be able to accommodate the staff and equipment.
• Features such as decoration can attract tenants and improve salability in future.
• Building layout is important as it can help reduce maintenance and operating costs.
Investor
• A major concern for an investor is the Present Value of Future Cash Flows.
• Return on invested capital is a primary motivating factor.
• Future cash flows (operations cash flow and sale proceeds cash flow) are analyzed to make
a buying decision.
Investors vs. User

• User groups are different from investor groups.
• The investment objectives are similar for both groups when it comes to decision making.
• The needs of the buyer must be understood, and these include investment objectives,
physical requirements and financial requirements.
• Investors: Needs assessment requires proper analysis such as fulfillment of investment
objectives, expected rate of return, period to hold investment, tax sheltering and long-term
strategy to diversify real estate through leverage.
MiniCram Notes 22
• Users: The most important factor is whether the property satisfies the requirements or not.
Risks in Decision Making

• Three major factors in decision making are- (i) Needs, (ii) Risk, and (iii) Return
• Risk refers to uncertainty, chance, exposure and vulnerability imposed on an investor,
particularly financial loss that may occur.
• For real estate purposes, risk is based on fluctuations in the income stream and vulnerability
of that stream to external influences such as market trends, availability of financing, degree
of positive or negative Leverage and overall economic conditions.
➢ Financial Risks: Interest rates and purchasing power of future dollars (inflation), etc.
➢ Market Risks: Real estate markets and occupancy/vacancy rates, etc.
➢ Business Risks: Taxation, slow economic activity and investment climate, etc.
➢ Building Risks: Physical calamities, depreciation, building code restrictions,
insufficient insurance coverage, etc.
Liquidity
• Liquidity refers to the ease by which assets can be readily converted into cash.
• Investment in short-term guaranteed investment certificates (GIC), funds in chequing
accounts, savings accounts, etc. are generally considered highly liquid.
• Investment in long term bonds, mortgages and real estate ownership require time to
liquidate.
4.3 Cash Flow
Return
• Return refers to the yield realized on an investment, which can be positive or negative.
• Return OF Investment: When the initial investment would return? The recapture of initial
funds at some future date through cash flow.
• Return ON Investment: How much will be the return on invested capital? A return on funds
invested through cash flow (operations or sale proceeds).
Cash Flow
• Cash flow refers to all monies flowing from an investment which can be positive or negative.
➢ Operations Cash Flow: Refers to periodic income received from the operation of the
investment. Annual Debt Service (mortgage payments) are subtracted from annual Net
Operating Income (NOI) to get Operations Cash Flow.
➢ Sale Proceeds Cash Flow: It represents the sale proceeds of the investment
(reversion).
• Cash Flow Before Taxes (CFBT) when tax liability is not considered.
• Cash Flow After Taxes (CFAT) is the income after deducting taxes.
• During valuation process the appraisers give more importance to Cash Flow After Taxes.
MiniCram Notes 23
3 Rules of Cash Flow

• Rule 1: Larger cash flow is better than smaller cash flow in a given time period.
• Rule 2: Today’s cash flow is better than tomorrow’s cash flow. Time is an important
consideration in analysis Investors look at Time Value of Money (TVM). Two things are
important – (i) amount of return and (ii) time taken to get that return.
• Rule 3 – After tax cash flow is better than before tax cash flow. This is the best measure of
cash flow realized.
4.4 Leverage
• Leverage refers to use of borrowed funds to make an investment in real property in the
hopes of realizing a profit.
• Leverage is expressed as a percentage of loan amount to the value of the project.
• Positive Leverage happens when yield to the investor exceeds the overall rate of return as
compared to a yield with no financing.
• Neutral Leverage (No Leverage) happens when no increase or decrease in yield by way of
leverage.
• Negative Leverage happens when the use of borrowed funds results in a lower equity yield
than the overall rate of return as compared to a yield with no financing.
Leverage and Risk

• Increased financing does not always provide attractive returns through positive leverage.
• Chances of negative cash flows are also there.
• An increase in interest rates may make the situation worse.
• The investor may have to use reserve financial resources to offset losses.
• Significant negative cash flows may also complicate problems if it is followed by loss of
value.
• Equity Elimination happens when the mortgage exceeds the value of property.
4.5 Taxation
Tax Sheltering
• Tax Sheltering refers to a financial arrangement that results in reduction or elimination of
certain taxes.
• Availability and reliability of income stream (operations cash flow),
• Opportunity to realize capital appreciation (sale proceeds cash flow),
• Leverage possible to maximize return on investment; and
• Tax considerations applicable to property.
Capital Cost Allowance

• The Income Tax Act provides for Capital Cost Allowance (CCA) on income producing
property.
• This generally reduces payable taxes on operations cash flow as well as sale proceeds
cash flow.
• Capital Cost of a property is what the buyer pays for the property.
MiniCram Notes 24
• Capital Cost Allowance (CCA) is the maximum rate that the taxpayer can claim for
depreciation for a specific class of asset determined by Canada Revenue Agency.
• Most buildings qualify for 4% CCA on a Declining Balance basis.
• The rate for office furniture and equipment is typically 20%.
• CCA is not a cash flow item but rather a matter of taxation and tax-deductible expenses.
• The amount of depreciation allowed depends on the class of assets.
CCA Calculation Methods

• Declining Balance Method: The capital cost of depreciable property declines by a set CCA
rate every year and the balance declines.
➢ Half Year or 50% Rule: One half of cost is permitted during the first year of purchase.
• Straight Line Method: The useful life of the depreciable assets is estimated and the annual
CCA taken represents a pro-rated amount based on the estimate. The calculation of CCA
for leasehold improvements paid by tenant uses the straight-line method.
Recapture of CCA
• Recapture occurs if the sale price of the property exceeds the original acquisition price and
the value of improvements has been maintained or increased since acquisition.
• All or a portion of the CCA claimed must be added to form part of profit for that sale.
• Terminal Loss occurs when depreciable assets have no value remaining at the time of sale.
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MiniCram Notes 25
5. SELLING A BUSINESS
5.1 Business
Shares or Assets
• A business is any undertaking for the purpose of profit, including any interest in any such
activities.
• Businesses are typically divided into categories for listing and selling purposes; e.g.
manufacturing, retail, service, wholesale.
• Sale of Shares: If shares in a corporation are being sold, the buyer assumes all assets and
liabilities and may use all assets of the corporation including the real property.
• Sale of Assets: If only assets of the business are sold, the seller is responsible for all payable
debt but also gets all receivables.
Key Considerations
• Financial Statements: Financial statements such as profit and loss statement and statement
of assets and liabilities of the business should be obtained from seller.
• Retail Sales Tax: The buyer must obtain a Clearance Certificate from the seller showing
that HST has been paid. Exempted items such as chattels must be supported by Exemption
Certificate.
• Chattels and Fixtures: A list of items included in the sale or excluded from sale should be
obtained.
• Lease of Premises: A copy of lease of premises should be attached to the agreement as a
schedule.
• Franchise Documentation: If the business is a franchise, a copy of the franchise agreement
should be attached to agreement.
• Licenses and Permits: The buyer should make adequate arrangement to transfer applicable
licenses or permits to continue the business.
• Equipment Leases: If any business equipment is not owned but is leased, the buyer needs
to assume these leases.
Financing by Seller
• The sellers are typically required to finance the sale by way of Seller Take Back (STB) or
Vendor Take Back (VTB).
• Business assets are the security for this type of financing.
• Earnout: This is a method of financing the sale of a business by the seller wherein the
balance of payment is based on the actual performance of the business after closing.
• This is helpful in finding the difference between what the seller is asking and what the buyer
wants to pay.
• Three types of Earnout calculations –
➢ Base Period Earnout: Additional payments in excess of balance due on purchase, are
paid as a proportion of the increase in profit, over and above the profit in the base
year.
➢ Incremental Earnout: Similar to Base Period approach except that additional
payments over fixed debt are calculated on a proportion of the year-to-year increase,
capitalizes at a pre-determined rate.
MiniCram Notes 26
➢ Cumulative Earnout: This approach is based on total increase in earnings over the
base year for the number of years of contract.
5.2 REBBA 2002 Requirements
Buyer Protection
• If a real estate brokerage is involved in the sale of a business, the buyer must receive the
following documents, prior to a binding agreement:
1. A profit and Loss statement for the preceding 12 months or since the seller acquired
the business,
2. A statement of Assets and Liabilities, and
3. A list of items (e.g. fixtures and chattels) that are not included in the sale.
• The first and second requirements do not apply if the buyer signs a statement attesting to
having received and read a statement under oath (Affidavit) from the seller as to various
matters relating to the business:
1. Terms and conditions under which the seller possesses the premises (owned or
leased),
2. Terms and conditions relating to any sublet of the premises,
3. All liabilities of the business
4. A statement that the seller has provided all books of account in his/her possession, or
has refused to do so, or has no books.
Sale of Business Affidavit (OREA® Form 503)

• This Affidavit is completed by the seller when financial statements are not delivered to the
buyer.
• This is done before a binding agreement is signed by the parties.
• The Affidavit has declaration from the seller regarding –
➢ Ownership of the business

➢ Whether the premises is owned or leased.
➢ Whether or not any part of premises is sublet.
➢ Liabilities of the business, if any.
➢ If account books have been delivered to buyer, or will not be delivered, or account
books do not exist; as the case may be.
• Waiver: The buyer signs the Waiver part of the Affidavit if he does not require the seller to
comply with the REBBA 2002 requirements.
5.3 The Bulk Sales Act
➢ The Bulk Sales Act was repealed in March 2017.
5.4 Business Valuation
Valuation Methods
• Direct Capitalization: The Net Operating Income generated by the business is capitalized
based on analysis of comparable sales.
MiniCram Notes 27
• Gross Profit Multiplier (GPM): This method is used if cap rate is not available for comparable
properties.
• Weighted Average: This method is used when the profits have varied over the past years.
It is greater than the simple average indicating that the business has higher profits in the
later years.
• Discounted Cash Flow: This method is useful when both the business and property are
being sold. Value can be established by discounting cash flows on the business enterprise,
as well as sale of the property.
Asset Valuation
• Businesses are sometimes sold simply based on assets without any regard to their
performance.
• The buyers typically use this method to acquire only assets of the business.
• Goodwill is non-tangible aspect of business and may have some value based on
performance and reputation.
• Inventory, equipment, fixtures and supplies are valued separately without considering
operating income.
• CCA: Steps must be taken to allocate the purchase price to specific assets. The seller may
want low value on assets while the buyer will want a higher value for Capital Cost Allowance
(CCA) purposes.
• Adjusted Book Value approach is used when a business has marginal earning potential but
notable retained earnings.
• Retained Earnings refer to value received in purchase of the business.
• The Book Value or Fair Value (Market Value) or a combination may be used to find out final
estimate for bargaining purposes.
• Bargaining mainly ranges between book value and fair value for the assets.
5.5 Sale of a Franchise Business
Categories of Franchises
• Retail: Fast food chains, specialty food shops, automobile services, convenience stores,
etc.
• Business/Personal Services: In-house cleaning services, security systems, car/truck rental,
tax returns, real estate brokerage, employment services, education/training, etc.
• Travel and Leisure: Travel agencies, tanning parlours, hotel chains and campgrounds.
Advantages of Franchise Business

• The franchisor assists both in startup and ongoing operation.
MiniCram Notes 28
• If the business of the franchisor expands, the franchisee also gets benefit in terms of
increase in value.
• The franchisor provides a ready-made image, training for employees, business logo and
marketing techniques.
• Group purchasing power of the franchisor lowers costs for the franchisee.
Disadvantages of Franchise Business

• Initial cost of purchasing an established franchise business may be quite high.
• Less freedom for the buyer because strict standards of the franchisor must be met.
• The franchisee may have to buy products only from the franchisor.
• Dispute resolution may be complex if the franchisor office is located at a distant place.
Franchise Agreement.
• Franchise documentation must be carefully reviewed by the buyer.
• The Franchisor may require approval of any agreement of purchase and sale.
• The franchisor may have taken Head Lease of the premises and the buyer may have to
assume the sub-lease from franchisor.
• A copy of franchise agreement should be attached to the agreement of purchase and sale
as a schedule.
• The buyer must also agree to the terms of franchise agreement.
Valuation
• The Franchisor charges a fee or other remuneration which must be considered during
evaluation.
• The cost of franchising usually depends on market penetration.
• Royalties for on-going operations can be significant.
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MiniCram Notes 29
6. COMMERCIAL LEASING
6.1 Commercial Tenancies – Legal Issues
The Commercial Tenancies Act

• A commercial tenancy refers to any lease involving a property principally used for business
purposes and is governed by the provincial Commercial Tenancies Act.
• At the end of the lease term, the tenant is required to transfer the Leasehold Estate back to
the landlord.
• An Agreement to Lease is without a settled form of Lease and contains fundamental,
material aspects of the agreement between the parties, but expects that a formal detailed
lease would be signed.
• A copy of the Lease should be attached to the Agreement to Lease to eliminate any
confusion between parties and to ensure that the tenant understands the terms of the final
lease.
• Hybrid Building: A building with two stores on main level and two apartments upstairs would
be considered commercial for main level and residential; for upper level.
Components of a Commercial Lease

• Base Lease: The base lease refers to a General Form of Agreement that applies to as many
tenants in a complex and contains minimum rents, services provided and allocation of
common areas to the tenants.
• Schedules in a Lease: Typical Schedules are –
➢ Schedule A – Premises
➢ Schedule B – Site Plan
➢ Schedule C – Landlord’s and Tenant’s Work
➢ Schedule D – Rules and Regulations
Assignment and Subletting

• The difference is based on Privity, which means that only parties to a contract can enforce
it on each other.
• Typically, the tenant in commercial lease is not permitted to assign or sublet without the
written consent of the landlord, which the landlord cannot withhold unreasonably.
• Assignment: If the tenant assigns the lease to a third party (assignee), then that third party
establishes Privity with the landlord. The original tenant may remain in privity with the
landlord, unless specifically released.
• Subletting: If the tenant only conveys a portion of its leasehold interest to a third party
(Subtenant), the tenant remains in privity with landlord. There is no privity of contract
between the landlord and the sub-tenant. Most commercial leases require the sub-tenant to
covenant directly with the landlord so that the landlord may take legal action against the
tenant or the sub-tenant.
Continuous Use vs. Dark Space

• A Continuous Use clause requires that the tenant continuously occupies the space,
maintains substantial stock and fully staffs the business.
• Dark Space refers to a situation when the tenant leases a large space in a commercial
complex, keeps on paying the rent but physically remains absent.
MiniCram Notes 30
• Dark Space puts the landlord in a difficult situation if the tenant is an anchor tenant as other
tenants would not be attracted to the complex.
Fixtures/Trade Fixtures
• Most leases provide that any fixture attached to the property becomes the property of the
landlord at the time of installation.
• Unless a lease specifies otherwise, a tenant who installs a trade fixture to the property can
remove it at the end of the lease term, provided that all rents have been paid in full.
• The tenant may also be required to bring the property back to its original condition and
repair any damages.
Guarantor vs. Indemnifier

• Guarantor: A guarantor has limited liability and if the tenant files for bankruptcy, the
guarantor is also released of his obligations.
• Indemnifier: Indemnifier is a covenantor in the same sense as the tenant and is liable even
if the tenant files for bankruptcy.
• Co-tenant: The proposed guarantor or indemnifier becomes co-tenant and is jointly
responsible for all obligations.
Restrictive Use and Exclusive Use

• Restrictive Use is a clause in the lease that limits or restricts the activities of the tenant as
per the lease agreement.
• Landlords include restrictive clauses to ensure a mix of tenants in the shopping centre.
• In some cases, a tenant may request Exclusive Use to better ensure business volumes.
Rent and Non-payment of Rent

• Interest on Deposit: The landlord is also not required to pay interest on security deposits,
unless otherwise agreed in lease.
• Rent Increases: The Commercial Tenancies Act does not regulate rent increases.
• Non-Payment of Rent: The landlord has two options –
➢ Change the Locks: A landlord may change the locks of the unit on the 16th day after the
due date. The landlord should not forcibly enter the premises and should allow the
tenant to remove their property.
➢ Seize and Sell Tenant’s Property: The landlord may, without giving any further notice
to the tenant, seize and dispose of tenant’s property. Any surplus should be given back
to the tenant. The landlord must notify the tenant of distress and the amount required
to remedy before selling the assets. The landlord must also hold the property for
minimum 5 days and get appraisal before selling. Subtenant’s property cannot be
seized or sold by the landlord if the sub-tenant is not in default of payments.
Rights and Obligations

• Tenants have the right to Quiet Enjoyment of leased property and are protected from direct
or indirect interference or threats by the landlord.
• A breach of contract occurs if the landlord deprives the tenant of use of premises, provided
the tenant is not in default.
MiniCram Notes 31
• Landlords and tenants have the right to apply to Superior Court of Justice or Small Claims
Court (for amounts of $25,000 or less) to seek damages in case of non-fulfillment of
obligations under the lease.
• Landlords must notify the tenant in writing of specific breaches of the lease and allow a
reasonable time to comply.
• The landlord may have the right to terminate lease if the tenant fails to fulfill obligations.
• Tenants must pay the rent on due date and cannot hold back rent when the landlord fails to
fulfill obligations.
Termination of Lease
• Month-to-Month: Either the landlord or the tenant can terminate the tenancy with a minimum
1-month notice.
• Fixed Term: Once the tenancy ends, the tenant has no right to occupy the premises.
• Overholding: An overholding tenant may have to pay two months of rent for every month
they occupy the premises after the lease has expired.
6.2 Types of Commercial Leases
Rent Calculations
• Gross Lease: The tenant pays a fixed rent and the owner pays all operating expense. This
type of lease is not preferred by landlords.
• Net Lease: The tenant pays a part of expenses for the leased premises. Three types are -
➢ Net Lease: The tenant pays rent and certain defined expenses.
➢ Net/Net Lease (Double Net): The tenant pays maintenance (minor repairs) and
operating expenses plus property taxes.
➢ Net/Net/Net Lease (Triple Net): The tenant pays all expenses including major repairs,
structural damage, etc. Also called Carefree to the Landlord Lease.
• Base Rent: This is the minimum rent and typically given as annual rent per square foot.
• Additional Rent: This represents the proportionate share of operating costs. Additional Rent
is estimated as tenant’s percentage area out of the Total Rentable Area of the building. The
additional rent may not include all costs incurred by the landlord.
• Percentage Lease): This clause in typically found in retail leases. It requires that the tenant
pays a fixed monthly rent plus a percentage of gross monthly income, in excess of Base
Sale, calculated using the minimum rent.
Other Rental Topics

• Advance Tax Payments: Commercial leases have provisions for advance payment of
property taxes to align with municipal tax payment dates.
• Supplementary Rent: This rent payment is typically based on Consumer Price Index (CPI).
This may involve a percentage applied to Base Minimum Rent over the period of the lease,
but tenants may negotiate a cap on such rent increments on annual basis.
• Expense Pass Through: In the expense pass-through clause, the landlord may have
provision to charge the tenants for certain capital improvements.
• Rent Concessions: Rent concessions affect the cash flow of both the tenant and the
landlord.
MiniCram Notes 32
• Typically, the concessions involve –

➢ Concessions for improvements performed by the tenant.
➢ Rent-free period (for base rent only) at the start of tenancy, graduated rent increases,
etc.
➢ Preferred treatment to tenant such as reserved parking, increased parking, upgrades
to leasehold improvements, etc.
➢ Renewal privileges, right of first refusal, expansion or reduction of leased space.
6.3 Measurements
Measurement Terms
• Measurement are based on Industrial Floor Measurement Standard provided by Building
Owners and Managers Association (BOMA).
• Gross Building Area: The total gross floor area of the building based on external
measurements. Unenclosed areas are excluded. Up to 2% difference in measurement is
permitted.
• Gross Leasable Area: Total floor area for occupancy and exclusive use of tenants.
• Usable Area: It is the actual floor area occupied by the tenant.
• Rentable Area: Rentable Area in an office lease is the Usable Area of the tenant plus an
allocation of common areas such as lobby, janitorial, washrooms and electrical room. The
Rentable Area is used for calculating rent.
• R/U Factor: The relationship between rentable and usable areas is called the R/U Factor or
Efficiency Factor. Sometimes, it is also called Add-on Factor.
• Loss Factor: The difference between Rentable Area and Usable Area.
Common Area
• It involves all areas used by two or more tenants such as corridors, lobbies and stairways.
This area is not under the control of any tenant
• Common Area Maintenance (CAM) is the landlord’s costs to repair, maintain, supervise and
administer common areas.
• The Common Area Maintenance (CAM) charges are pro-rated among all tenants and billed
as Additional Rent.
6.4 Property Management
Functions of Property Management

• A commercial brokerage may be involved in management of a commercial complex.
• Four Management Functions: Property leasing, Rent collection, Payment of expenses, and
Maintenance of the property.
• Management Agreement: This agreement sets out the roles and responsibilities of the
owners and the property manager.
• Maintenance Plan: The property manager would develop a maintenance plan. This includes
assessment of property needs, identification of staff requirements, time lines for repair jobs,
and orderly upkeep of the property.
MiniCram Notes 33
• Budget: Commonly used methods for budgeting are – Projection of annual and monthly Net
Operating Income, Budget for annual and monthly cash flow Budget and budget for capital
reserves.
• Insurance: Insurance coverage is required to provide protection to the building structure and
management of the building.
• Security: The property management must take reasonable care to provide protection to the
tenants. Elements of a modern security systems must include a good design, hardware,
people and management.
• Improving Relationships: Property manager can help improve relationships between the
owners and the tenants. Such activities include development of procedures, rules for using
amenities in the building, establish tenant policies regarding rent collection, property
damage, tenant complaints, etc.
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MiniCram Notes 34
7. THE AGREEMENT TO LEASE – COMMERCIAL
7.1 The Agreement to Lease
Agreements in Writing
• An Agreement to Lease is without a settled form of Lease but must contain essential
elements of a lease so that it can be enforced.
• It contains fundamental, material aspects of the agreement between the parties, but expects
that a formal detailed lease would be signed.
• Statute of Frauds: A lease of less than 3 years need not be in writing but that may not be a
good practice for both the landlord and the tenant.
• Doctrine of Part Performance: This concept is considered by courts in case of a dispute, for
contracts of land that are not in writing. When one party has actually performed part of the
contract (e.g. the tenant occupied the premises and paid rent), and a clear evidence exists,
a contract is deemed to exist.
• As per REBBA 2002, all contracts related to land must be in writing to be effective.
• Commercial rent is subject to HST and is ‘In Addition To’ the amount of rent.
Different Forms
• Short Form of Leases Act: Lease agreements can also be prepared under this Act, which
provides for standard short wording.
• OREA® Form 510-Long Form is suitable for most commercial leases involving a Net Rent
and has provision for graduated rent increases.
• OREA® Form 511-Short Form is suitable for smaller leases involving a Gross Rent.
• The Agreement to Lease form does not include any provision for Credit Check of the tenant
because the Consumer Reporting Act describes a consumer as someone not engaged in a
business.
Rent Concessions
• Rent concessions affect the cash flow of the landlord and the tenant.
• Concessions include Rent-Free Period, graduated rents, etc.
• The landlord may also be willing to provide reserved parking, renewal privileges and rights
regarding expansion or reduction of leased space.
• Expense Stop: Sets out maximum landlord contribution regarding concessions.
• Early Occupancy: The landlord may have some conditions such as the lease should have
been signed, security deposit must have been paid, all landlord’s work is done, and the
tenant has obtained insurance, etc.
7.2 Lease Negotiations
Tenant Objectives.
• Industrial Tenants are focused on ceiling heights, clear floor area, floor load capacity,
loading docks, office component and electrical/mechanical systems.
• Retail Tenants often look for demographics of area, traffic, visibility and location so that
greater revenues may be generated.
• Office Tenants are mainly interested in good location, appearance, facilities, parking and
security.
MiniCram Notes 35
• Supply and demand of commercial space affect the rental rates in a particular
neighbourhood.
Landlord’s Perspective - Factors

• Increased income received from tenants provides additional cash flow which results more
capital return and has positive effect on property value.
• The landlord is assured of continuous and long-term lease income.
• Well documented lease and sub-lease accurately defines tenant’s obligations during the
lease term to minimize landlord’s work.
Tenant’s Perspective - Factors

• The tenant needs a prime location, but ownership is impractical due to insufficient capital
resources. Leasing may be seen as a method to utilize 100% financing.
• Leasing can provide a better financial picture, may utilize all financial resources and
positively affects credit rating.
• Tenant can claim rent payments as an expense on the Profit and Loss Statement while
mortgage payments would show as a Liability in the Balance Sheet.
• Default on a lease is usually not as serious as default on mortgage payments.
• Tenant saves himself from the responsibilities of property management.
Disadvantages of Leasing
• The tenants do not get any benefit of property value appreciation.
• The benefits of lease are limited to the term of the lease which may not be renewable.
• Tenant’s clientele, reputation and image may be adversely affected if the tenant has to
move.
• If rent increase is significant over the years of tenancy or at the time of renewal, the cash
flows of the tenant may be negatively affected.
Difficulties of First Time Tenants

• Suitable location is difficult to find, and they may not have sufficient time to research different
locations. Special facilities may not be available for first time tenant for their particular
business operation. They may face strict credit checks and associated charges.
• First time tenants may not correctly estimate the different and variable costs incurred in
running the business. They may underestimate the cost of fixtures, improvements or
stocking.
• Even for similar commercial properties, the rental costs may vary considerably.
• Some tenants may want to do the finishing work themselves to save costs, but the landlord
may not agree due to safety, standards and/or liability issues.
• While some landlords may be ready to give concession to first time tenants, most other
Landlords prefer to lease the premises to well-established businesses. They want to
maximize their cash flows, their return on investment and maintain a most appealing mix of
tenants in the building.
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MiniCram Notes 36
8. UNDERSTANDING LEASE CLAUSES
8.1 Typical Clauses - Retail Lease
• Parties to the Lease: This clause identifies the landlord and the tenant. There must be at
least two signatories, the landlord and the tenant. Also, it is possible to sign an agreement
on behalf of “A Corporation yet to be Formed”.
• Intent of the Lease: The landlord clearly states that the tenant will be responsible for all
costs incurred in the operation of the business, excluding only the landlord’s income taxes
and financing.
• Premises: A Site Plan is usually attached as a schedule in the lease to specify the premises,
location and dimensions. In case of a single purpose property, the entire premises or the
building itself is leased, including the parking lot. Location is critical to the tenant in retail
centres as they want to stay close to entrance, anchor tenants, reputed stores, etc.
Term
• A lease must have a date of commencement and an expiry date; otherwise it is void and
cannot be enforced.
• The landlord Demises the Premises (transfers the premises) or grants a lease to the tenant
for a certain period of time (term).
• The premises must revert to the landlord at the end of the term.
• If the lease contract does not provide for a reversion, then it is not a lease but may be
considered a sale of the property.
• The commencement date of the lease and the start date for rent payment may not be the
same. Some tenants require 30 to 60 days’ time for installation of fixtures or stocking the
store.
• In this case, the landlord wants to ensure that the lease is in effect when the tenant starts
leasehold installations, even though he may be willing to provide a Rent-Free period.
• Renewal: This clause allows the tenant to renew the lease on terms to be negotiated.
• Overholding: This clause permits the tenant to remain in the premises and the landlord to
receive income for a brief period following termination of lease term.
Opening
• Deferment of Opening: The landlord may require that the tenant adheres to an Official
Opening date of the shopping center. Tenant also agrees to defer his store opening to align
with landlord’s official opening date without any penalty to the landlord.
• Failure to Open: If the tenant fails to open on the Official Opening date, the landlord may
charge double rent, may claim additional payments and may even terminate the lease if the
tenant does not open after a specified number of days.
Non-Completion of Premises
• This section is a must for the protection of those landlords who are involved in development
projects because the landlord may fail to complete the project by the date agreed with the
tenant.
• Failure to include such clause could leave the landlord open to lawsuits.
• Major tenants will frequently attempt to insert a penalty clause that provides payment of a
fixed amount, should the landlord fail to complete the premises.
MiniCram Notes 37
8.2 Rental Clauses
• Rent-Free Period: This clause permits the tenant to occupy the store 30 to 60 days in
advance to complete its finishing, fixtures installation and stocking. The tenant must have
executed the lease and arranged insurance coverage. Furthermore, the landlord may
require approval of tenant’s plans and a building permit.
• Rentals Payable: The rent in a shopping centre has two parts – The Base Rent or Minimum
Rent and the Additional Rent.
• Post-dated Cheques: Monthly post-dated cheques are typically required to ensure prompt
and regular payment of rent.
• Tenant’s Proportionate Share: The proportionate share of Total Rentable Area of the
building is used to calculate the Additional Rent.
• Advance Rent: The first and last month’s rent (sometimes last two months’ rent) rent is paid
in advance. Interest on this deposit is negotiable.
• Other Payments: The lease may require tenants to pay for various expenses which are
other than the Base Rent and Additional Rent so that the landlord enjoys all accrued benefits
of tenancy obligations.
• Security Deposit: This additional security is provided to the landlord over and above the rent
deposit. Major tenants may not agree to such security deposit and smaller tenants may
demand interest on such payments.
Percentage Rent
• The differing rates of percentage rent applied to various tenants usually reflect the level of
their sales volume and the level of profitability of their business.
• Monthly sales figures allow the landlord to receive monthly interim cheques rather than
waiting for the year end.
• Sales Reporting: This section allows the landlord to monitor tenant’s success or probability
of failure and helps evaluate the effectiveness of advertising.
• Gross Sales Defined: This section is included to limit the possibility of the tenant not
including all sales from the premises, which would reduce the percentage rent obligation.
Tenant’s Records
• This section permits the landlord to establish a monitoring system for reporting gross sales
so that cash-based stores do not falsify their sales records to avoid percentage rent.
• Some stores such as fast food, convenience stores, variety stores, barbers, etc. have a
higher proportion of gross sales generated through cash sales.
• Some leases contain a clause permitting the landlord to terminate the lease if the tenant
does not achieve sales levels sufficient to provide a percentage rent payment.
Common Area Maintenance (CAM)

• Landlord’s Occupancy Costs are specified in this section.
• This section permits the landlord to transfer every cost incurred in the operation of the
shopping centre to the tenants.
• The landlord may recover the cost of any reasonable item required for operation of the
shopping centre.
• In addition to cost of smaller items such as salaries of administration staff, the cost of major
repairs such as repaving, a new roof or other major renovations may also be included.
MiniCram Notes 38
Conduct of Business
• The landlord tries to keep best possible control over operation of the shopping centre to
ensure that the tenants achieve high sales volumes. This results in increased percentage
rent payment to the landlord.
• The landlord may consent to extended shopping hours for certain stores such as
convenience stores, restaurants, etc.
• They will calculate additional costs of operating the centre and divide it among those stores
that remain open late.
Use of Premises
• Each and every tenant operates its business within a narrowly defined store type. Precise
limitation of uses is common with smaller tenants, but anchor tenants will demand least
limitations on their use. Landlords insert this clause to ensure a mix of tenants in the
shopping centre.
• Exclusive Use: Tenants may sometimes seek Exclusive Use. It is a dangerous element of
lease and is never a part of the lease produced by a landlord. The Exclusive Use grants
one tenant a use that prohibits a similar use anywhere else in the centre. In large centres,
the landlord may refuse smaller tenants any Exclusive Use.
• Restricted Uses: This section has a list of uses that the landlord will automatically refuse.
Any Exclusive Use granted to a specific tenant also becomes a Restricted Use for all other
tenants.
Insurance
• Landlord’s Insurance: The landlord insures for every possible eventuality, including rental
insurance to pay for the loss from non-payment of rent in the event of damage to the
building.
• Tenants Insurance: The tenants insure against three main elements – (i) Loss of income;
(ii) Damage to their stock, improvements and fixtures; and (iii) Any damage to the premises
that requires the tenant to repair.
• Higher Risk Business: The tenant is also directly chargeable for higher premiums if their
business produces higher than normal risk.
8.3 Repairs and Alterations
Repair of the Premises

• Maintenance of major components of the building structure is landlord’s responsibility and
this includes roof, structure, bearing walls, etc.
• The landlord may charge back the cost of repairs to the tenants in Common Area
Maintenance (CAM) charges.
• The tenant is responsible to repair the interior of their premises and maintain hygienic
conditions.
Alterations to the Premises

• The landlord insists on full control of any alteration in the premises that the tenant desires
and may not allow the tenant to do any alterations without permission of the landlord.
• Any work that involves the building structure or the roof is performed by landlord’s
contractors and be paid by the tenant.
MiniCram Notes 39
Changes and Additions to the Retail Centre

• Since no one can expect or foresee what changes may occur in future, this clause is
extremely important for landlords. The landlord should be able to alter the design, coverage
and area of premises, at its own discretion.
• After commencement of lease, the governing document is the lease, but even then, the
landlord may have reserved the right to relocate the tenant or alter its premises.
• The tenant may get the only right to terminate the lease if the changes do not fit its
requirements.
• But major tenants may require that the landlord gets their consent for any such changes.
Damage and Destruction

• When significant damage occurs to the shopping centre, the rental units may no longer be
able to generate profit.
• The landlord would largely be covered by insurance, except for the Percentage Rent.
• The tenants want an assurance that the landlord would carry out the repair work as early
as possible so that they may resume their business.
• Abatement of Rent: In certain commercial leases, the landlord may agree to reduce the
tenant’s rent when the property is damaged, and the tenant is not able to carry out its
business from the premises for more than 10 days. This provision applies only if the damage
is not due to fault or negligence of the tenant.
Expropriation
• When expropriation occurs, the landlord and the tenant each have their separate rights to
compensation, and these should not be merged.
• Expropriations that substantially limit or restrict the operable capacity of a shopping centre,
office building or major industrial building are very rare because of high compensation costs.
Promotion
• Merchants Association: In this method, the landlord typically contributes 25% to 35% to the
cost of promoting and advertising the shopping centre.
• Promotion Funds: Most landlords prefer this method because the advertising expenses are
paid by the tenants and the money is spent by the landlord at its discretion.
8.4 Breach of Contract
Abandonment
• Under the Critical Bankruptcy elements of the tenancy, the landlord may act even when the
tenant has not breached the contract, but clear reasons exist that he intends to breach.
• Some indications of a tenant who intends to breach include –
➢ Consistent reduction in stock or staff,

➢ Irregular or late rental payments,
➢ Lesser interior maintenance,
➢ Consistent reduction in advertising, or
➢ Questionable sales.
MiniCram Notes 40
• If the landlord can prove that the tenant has clear intentions to abandon the premises or
when the tenant has actually abandoned, the entire remaining rent and additional rent, for
the remaining term, becomes due and payable.
• As a result, the landlord may enter and seize the assets and has the right to distrain (sell)
the tenant’s property.
No Encumbrances
• The landlord wants to ensure that the fixtures and equipment in the leased premises do not
have any encumbrances/liens and there is no mortgage or financing against the lease.
• This is to make sure that the landlord gets additional security in the event of breach by the
tenant.
Right to Relet
• When the tenant has abandoned the premises, the landlord may want to relet the premises
to maintain high occupancy levels.
• In this section of lease, a method is set so that the landlord tries to Mitigate the Damage
(tries to reduce the debt of the defaulting tenant).
• If the landlord is successful in leasing the premises again at a higher rate, he would only
charge administration expenses from the defaulting tenant.
8.5 Miscellaneous Clauses
Assignment or Subletting
• In case of an assignment or subletting, a different tenant (an individual or a corporation)
assumes the lease. The landlord may have reserved the right to terminate the original
tenant’s lease when faced with such a request.
• Major tenants will normally demand the right to assign or sublet.
• The landlord wants to ensure that if consent for assignment or subletting is granted, strict
provisions are included in the lease, such as a guarantee of the provisions of the lease.
• The landlord ensures that if the original tenant receives any benefit from the assignment or
subletting, the benefits go to the landlord.
Non-Competition (The Radius Clause)

• The landlord wishes to secure the highest possible sales and restrict a tenant from opening
another similar branch, or similar store, within the immediate vicinity of the shopping centre.
• This helps ensure that the tenant generates maximum sales from this very location, resulting
in higher percentage rentals for the landlord.
• Conversely, anchor tenants may impose a similar restriction on the landlord where the
landlord may not develop another shopping centre in a defined radius.
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MiniCram Notes 41
9. TRENDS AND COMMON ISSUES
9.1 Due Diligence
Fact Finding
• Due Diligence refers to verification of relevant information about a real estate transaction.
• It typically focuses on financial, legal, structural and environmental matters related to the
subject property.
• Agreements usually provide a month or more to the buyer to access and analyze related
information obtained from the seller as well as from public sources.
• The buyer usually has the right to terminate the agreement if the facts discovered do not
meet expectations.
Scope of Analysis
• Document analysis is done to have full knowledge of relevant facts and the scope of
analysis varies with the type of subject property under consideration.
• Different types of properties need different documents and time. No standard clause exists.
➢ Financial/Operational: The documents include income statements, balance sheets,
bank statements, rent rolls, lease contracts, tax bills, employee records and details of
operating expenses, etc.
➢ Legal: Analysis includes title search, assets and liabilities, outstanding mortgages or
other encumbrances, surveys, licenses, contracts, permits and zoning compliance.
➢ Structural: Commercial buildings are inspected in accordance with the standards of
ASTM International (American Society of Testing and Materials). Building inspection
is done to identify physical deficiencies. The inspection report includes items that need
immediate repairs, excluding any regular maintenance.
Environmental Assessment
• Environmental Audit of a commercial property may be required before a binding agreement
and it is an important part of Due Diligence.
• Environmental hazards or contamination may be a significant risk to human health or life.
• Environmental analysis is done in three phases -
➢ Phase 1 Audit: Visual inspection of property and review of documents (registry
information, records from Ministry of Environment, certificates, etc.) is done in this
phase to determine whether or not any contamination is there.
➢ Phase 2 Audit: Samples of soil, water and hazardous waste are taken, and
tests/analysis are conducted to determine the scope of contamination.
➢ Phase 3 Audit: Remedial steps (corrective action) are performed in this stage to
remove contamination.
9.2 Site Selection and Brownfields
Site Selection
• Economic Development Offices: These offices have information on available real estate
inventory (vacant land or buildings). This information is helpful to those who are looking for
commercial sites for development.
MiniCram Notes 42
• Economic Development Officer can help with the following –

➢ Guide the application and approval process through municipalities.
➢ Provide information about incentives available from federal, provincial or local
governments.
➢ Registrants can find abundant information for their out-of-town clients who are
searching for local sites for development.
Typical Site-Specific Factors

• Details regarding price, geographic location, frontage and total area.
• Zoning requirements related to permitted uses, setbacks, maximum coverage and height
restrictions.
• Soil conditions, topography, terrain, environmental factors, physical barriers, need for fill or
water retention method.
• Transportation, condition of access roads, costs of rail access, parking requirements, and
future municipal expansion plans.
• Availability and cost of services such as water supply, storm and sanitary sewer, electricity
and natural gas, fuel delivery and communication facilities.
Brownfields
• Brownfields are abandoned or contaminated lands which have the advantage of in-place
infrastructure such as roads, utilities, water/sewer servicing, schools and transit facilities.
• Ontario Brownfields Statute Law Amendment provides for redevelopment and revitalization
of Brownfields.
• It made amendments to the Planning Act and the Municipal Act to facilitate such activities.
• The objectives achieved by the legislation include assessment of valuable land resources
for remediation and redevelopment.
• They address liability issues and provide for municipalities to grant financial incentives and
tax relief.
• As per the Environmental Protection Act, the following conditions must be met in order to
receive protection from future clean-up orders –
➢ Site Assessment: The property must still meet site assessment standards in order to
avoid future Ministry of Environment orders.
➢ Standards: The property must meet soil, ground water and sediment standards for
intended use.
➢ Record of Site Conditions: Preparation and filing of this report is required.
9.3 Capital Gains Tax
Capital Gain
• Capital Gain is realized from the sale of Capital Property (including real property), a
percentage of which must be added to taxable income.
• The taxpayer is responsible for reporting the gain as regular income or as capital gain.
• If challenged by Canada Revenue Agency, the responsibility of proof is on the taxpayer.
• The Tax Court of Canada hears appeals in this regard and investigates the conduct of the
taxpayer before, during and after the taxation period.
MiniCram Notes 43
Key Factors
• Intention: The taxpayer’s intention at the time of purchase is a key issue. If a property is
purchased for investment, the resale profit may still be considered as ordinary income.
• Relationship to the Taxpayer’s Business: The profits may be considered normal income
when a taxpayer uses expertise acquired in regular business to earn profit on
purchase/sale. Real estate transactions of contractors, renovators, real estate registrants,
mortgage agents and appraisers are typically scrutinized very closely.
• Frequency of Transaction: How often the taxpayer engages in the sale of capital property
is assessed.
• Nature of Transaction and Assets: If the asset cannot normally be used either personally or
for investment purposes, the gain may be considered as regular business income.
• Objects of the Corporation: The Article of Incorporation is studied to determine if the
transaction falls under the objects of the corporation and its usual business.
Exemptions for Principal Residence

• Principal Residences may have exemption from Capital Gains Tax. Registrants should seek
expert advice on these matters.
• A Principal Residence must meet the following qualifying criteria –
➢ The housing unit is owned solely or jointly by the taxpayer,

➢ The land cannot exceed one acre,
➢ The housing unit must be ordinarily occupied during the year by the taxpayer, and
➢ The unit must be designated as taxpayer’s principal residence for the year.
Real Estate Transactions

• If the taxpayer regularly buys and sells real estate, the profit from sale would likely be taxed
as regular income
• If the taxpayer can prove that the transactions were planned and necessary part of total
investment program, there may be a case for Capital Gain.
• In case of farmland, if the taxpayer has purchased it or inherited and lived on it, then the
gain may be considered Capital Gain.
• If a sale is not planned, brokers are not involved in sale, the property is not advertised, there
is no evidence of active marketing, then the profit from sale may be, but not always, treated
as capital gain.
• If a taxpayer had purchased the property for a third party without expecting profit but that
party backed out of deal and the taxpayer had to sell it, there may be a case for Capital
Gain.
9.4 Bankruptcy
The Bankruptcy and Insolvency Act

• Insolvent or Bankrupt is a person or a company who is unable to meet debt obligations.
• The federal Bankruptcy and Insolvency Act (BIA) describes Bankruptcy procedures, a legal
process which discharges most debts subject to certain conditions.
• The Act applies to individuals, sole proprietors, partnerships and corporations.
• Some debts are not released such as a student loan, claim for alimony, spousal or child
support, a debt due to fraud, a court fine, and an award for damages involving an assault.
MiniCram Notes 44
• The debtor under bankruptcy hands over assets to a Trustee in Bankruptcy to dispose of
and distribute the funds to creditors.
• Creditors cannot take any further action against the bankrupt individual or company.
Discharge
• First time bankrupts are usually discharged after nine months, unless the discharge is
opposed by creditors, the trustee or the Superintendent of Bankruptcy.
• In that case a court hearing would be required. The court may provide any of three types of
discharge -
➢ Absolute Discharge: The bankrupt individual is fully discharged.
➢ Conditional Discharge: Certain conditions must be met before an Absolute Discharge
is granted.
➢ Suspended Discharge: The Absolute Discharge is effective from a future date.
Proposal
• The purpose of a Proposal is to reduce or settle a debt in order to avoid Bankruptcy.
• An individual or a company that owes between $1,000 and $75,000 can make an offer to
the creditors to settle the debt.
• The proposal sets out debtor’s strategy to creditors for reducing the debt and extending the
time period for repayment.
Bankruptcy
• Trustee in Bankruptcy: A Trustee in Bankruptcy must first meet the individual or a company
to assess various options. They are responsible to maintain contact with the bankrupt
individual/company.
• Receivership (Companies): A Receiver is appointed by the creditors or by court order in
order to manage company’s assets for winding down the operation. The Receiver sells
assets by tender, auction or other process on ‘as is’, ‘where is’ basis.
• Bankrupt Commercial Tenant: Salespersons and brokers need to be aware that the
landlord’s right to distrain (sale of assets) for non-payment of rent is directly impacted as
creditors gain priority under the BIA over the landlord.
Vesting Order
• A Vesting Order makes the sale of assets exempt from the Bulk Sales Act.
• This court order provides the buyer with court sanctioned possession, control and title of
the property.
• It removes listed credit claims and outstanding encumbrances or liens on the property.
9.4 Municipal Tax Sales
Tax Arrears Certificate

• Municipal Tax Sale occurs when a property owner is in arrears of property tax. The property
tax remains unpaid as of January 1st of the year following the tax year.
• A Tax Arrears Certificate is issued by the municipality against the title on the January 1st of
3rd year after taxes become owing.
MiniCram Notes 45
• It is registered in the Land Registry Office and a notice is sent within 60 days to the owner,
and other persons who have interest in property.
• The owner can cancel it by paying the Cancellation Price given in the certificate. It includes
the amount of tax in arrears, current tax, interest and penalties.
• If payment is made by the owner the municipality must register a Tax Arrears Cancellation
Certificate, which is a proof of payment.
Public Sale of the Property

• A public sale of the property is conducted if payment is not received within one year of
registration of the Tax Arrears Certificate.
• The property may be sold either by Public Tender or by Public Auction.
• The Public Tender method sets out minimum tender amount. 20% of the tendered price is
payable at the time of submitting the tender and the balance is due within 14 days of
acceptance.
• If a Public Auction is held, it is subject to a minimum bid. The highest bidder must pay the
bid amount, the Land Transfer Tax and accumulated taxes to the auctioneer.
9.5 Commercial Ownership
Sole Proprietorship
• Sole Proprietorship is a business undertaking owned and managed by a single person.
• This business operation can be started immediately with little paperwork, start-up costs are
low and tax advantages also exist.
• Disadvantages -
➢ Limited capital investment results in low borrowing power, unlimited liability in case of
bankruptcy and right of creditors to seize personal assets in the event of default.
➢ The owner is responsible for all debts, is entitled to profits but is also liable for all losses.
➢ There is no separation between personal income and business income.
➢ Sole proprietorship lacks continuity as after the death of the person, the business would
be dissolved.
Partnership
• A Partnership involves two or more individuals or entities who undertake a business
operation for the purpose of making a profit.
• A Partnership Agreement is signed and is governed under the Common Law. Mere sharing
of business efforts and profits may not constitute a Partnership.
• Partnership is personal in nature and all partners are jointly and severally liable for the
actions of one another.
• A partnership must not be confused with a corporation and is not a limited company.
• Each partner is personally responsible to report the profits or losses for taxation purposes.
Limited Partnership
• A Limited Partnership is registered under the Limited Partnerships Act.
• It limits a partner’s liability to the amount invested and profits shared.
• There must be at least two partners - one General Partner and one Limited Partner.
MiniCram Notes 46
• The General Partner operates the business and has unlimited liability.
• The Limited Partner is a passive investor whose liability is limited to the investment.
Corporation
• A Corporation is a legal entity established after registration of an Article of Incorporation
under the Corporations Act.
• Ownership of a corporation is by way of shares and these shares can be sold or transferred.
• It provides a legal separation between the business operation and its owners (Share
Holders).
• Corporations may be merged into a single corporation and a single corporation may be split
to create subsidiary corporations.
• The liability of shareholders is restricted to the value of shares held as given in Article of
Incorporation.
• Debts of the corporation are distinct from the shareholders unless an agreement is signed
for personal guarantee or liability.
Joint Venture
• Joint Venture refers to a real estate project started by a group of investors in order to share
profits or losses.
• Each member is assigned a proportionate share of the assets/liabilities based on the
investment and each member can calculate income individually for tax purposes.
• No investor can individually control the project and the life of the Joint Venture is limited to
the project life.
• An undivided interest exists in the project, which means that no specific part or unit is
assigned to any investor.
• Canada Revenue Agency has not given any formal tax status to Joint Ventures and a formal
Business Number is not assigned.
Trust Ownership
• The Trustor or Settlor gives property or assets to the Trustee by means of an agreement.
• The Trustee manages the property or assets for the benefit of a Beneficiary.
➢ Testamentary Trusts take effect upon the death of the Trustor.

➢ Inter-vivos Trust is effective while the Trustor is alive.
➢ Family Trust is meant to protect an estate for the benefit of children in future.
• Types of beneficiaries –
➢ Income Beneficiaries receive income from the trust.

➢ Capital Beneficiaries who receive benefits from income, the sale of assets, or both.
Real Estate Investment Trust (REIT)

• REIT arrangement utilizes capital from various investors in the acquisition or financing of
real estate.
• An REIT is not subject to income tax if it distributes entire annual income to its unit holders.
MiniCram Notes 47
• Typical Real Estate Investment Trusts are –
➢ Equity REIT: This REIT is focused on property ownership such as acquisition of

shopping centres, office buildings, warehouses, etc.
➢ Mortgage (REIT): This REIT focuses its activities in mortgage financing. This is also
known as Mortgage Trust.
Agreement of Purchase and Sale – Commercial

• It is possible for a buyer to purchase a commercial property in the name of a trust, for a
corporation, which is not yet registered.
• Registrants need to be aware that the seller must seek expert advice in such a situation.
• In case of non-completion of the sale, there may not be a legal recourse for the seller against
the buyer.
• Certain entities may try to avoid liability by purchasing a property using the buyer name as
‘In Trust for a Corporation yet to be Formed’ in order to avoid liability.
------------------
MiniCram Notes 48
10. COMMON ERRORS
10.1 Inaccurate/Incomplete Information
Non-Disclosure of Material Facts

• REBBA 2002 Code of Ethics requires that Competent and Conscientious Service must be
provided to clients and customers. Registrants must take reasonable steps to determine
and disclose material facts about the property. Registrants may face complaints or lawsuits
when a buyer discovers defects in a property after closing.
• Examples of facts related to property include roof leakage, problems with mechanical or
HVAC systems, environmental hazards and incorrect building measurements.
➢ Latent Defects: Physical deficiencies or defects which are not readily observable
through reasonable inspection.
➢ Material Latent Defects: Deficiencies that do not satisfy buyer’s intended purpose,
make the property dangerous, makes it unfit for habitation, or the improvements lack
requisite permits or are not in compliance with municipal requirements.
Risk from Client’s Perspective

• Seller’s Perspective: Relying on seller’s statements, non-verification of facts, not inspecting
the property, not discussing seller’s legal obligations to disclose latent and material latent
defects, making assumptions about facts, failing to immediately resolve issues and failing
to include a condition that may instead protect the buyer.
• Buyer’s Perspective: Failing to include requirement of due diligence documents, not
advising a thorough property inspection and not encouraging the buyer to seek expert
advice on due diligence matters.
Minimizing Risk
• Inquire: Ask questions concerning roofs, water seepage, condition of HVAC, plumbing and
electrical systems.
• Investigate: Conduct personal inspection of all above items.
• Verify: Point out any deficiencies to the seller and request additional information.
• Disclose: Disclose the existence of these material latent defects to the buyer and allow the
buyer sufficient time to further investigate.
10.2 Inadequate Documentation
Paper Trail
• Registrants must maintain record of trade related documents as evidence to support their
past conduct.
• Personal filing system, copies of trade documents, electronic planner system and making
notes about showings and maintaining a paper-based message log of emails help reduce
Errors and Omissions risk.
Marketing Documents
• Confidentiality Agreement: This agreement is used by brokerages for commercial
transactions to safeguard confidential information of the clients. In the event of breach of
agreement there is a provision that the injured party may seek damages through court.
MiniCram Notes 49
• Pro Forma (According to Form) Statement: These are estimated financial statements
prepared by a brokerage and concentrates on projected cash flow, before or after taxes.
They are for general guidance only and should include an appropriate Disclaimer,
assumptions and limitations.
10.3 Environmental Issues
Risk Factors
• Failing to discuss environmental issues with buyers/sellers (without providing any expert
advice).
• Disregarding or ignoring the visual clues of contamination.
• Not enquiring or investigating current and past uses of the property.
• Not recommending expert advice and not including appropriate clauses in the agreement.
Properties That May Have Contamination

• Gas stations, dry-cleaning facilities and auto repair shops.
• Rail yards, refineries and landfill sites.
• Vacant land with odorous and/or discoloured surface water.
• Land that has debris all over or that has lower grade level than adjacent potential source of
contamination.
• Indications of underground buried materials or bulk metal storage.
• Abandoned structures or structures where the use was changed after initial construction.
• Knowledge of past use of land which is being sold as development land.
Environmental Insurance
• Insurance coverage involves third party liability, cleanup and remediation costs, interrupted
business operations, and legal expenses.
• A lender taking control of a mortgaged property under default may be held liable under
provincial environmental legislation (Environmental Protection Act) for the pollution on the
possessed land.
• Further, buyers can face liability for environmental hazards after buying the property.
10.4 Taxation
Harmonized Sales Tax (HST)

• Risk increases when the registrants assume that a specific property is exempt from HST.
• Tax applies to most real estate transactions, unless a specific exemption exists. Most
commercial sales and leases are taxable.
• Charitable and non-profit organizations, hospitals and educational institutions are exempted
from HST. Most residential resales and residential rentals are also exempted.
• The seller is responsible to remit taxes on sale and the tax must be collected from the buyer
at the time of sale.
• The seller typically submits tax payment to CRA with his/her own HST return and the buyer
may claim an Input Tax Credit.
• A Mixed-Use property (hybrid building) that contains both residential and commercial uses
is viewed as taxable for commercial purposes but exempt for residential purposes.
MiniCram Notes 50
• Retail Sales Tax is levied on fair value of tangible personal property such as chattels. It is
not applicable to real property, fixtures or rentals.
Non-Resident Sales
• Non-resident sellers must remit the Capital Gains Tax on sale within 10 days of closing.
• The seller may remit the tax in advance, get a certificate from the Minister of Revenue and
deliver it to buyer.
• The seller may give credit to the buyer for the tax amount because the buyer ultimately
becomes responsible if the seller fails to pay.
Property Tax
• Registrants must obtain correct information on property taxes.
• Assessments are annually done by Municipal Property Assessment Corporation (MPAC).
• If the owners do not agree with the assessment value, they have two options to appeal –
➢ Request for Reconsideration (RFR) can be filed with MPAC.
➢ An appeal may also be made with Assessment Review Board (ARB).
Special Assessments
• Special Assessment is a financial levy on those properties that directly benefit from the
special assessment.
• Local Improvement Tax: This tax is levied in a neighbourhood for improvements such as
installation of new curbs and sidewalks.
• Condominiums: A Special Assessment is made when the corporation does not have
sufficient money in Reserve Fund for necessary repairs/replacement of common elements.
All unit owner must pay according to their proportionate share.
10.5 Easement Descriptions
Survey vs. Vague Descriptions

• Errors and Omissions risk increases when the registrant does not make efforts to enquire
about known easements.
• Vague descriptions of the property or reliance on old surveys poses significant risk.
• Registrants must confirm property details through source documents such as Survey or
Title/Deed.
• An up-to-date survey will not only show property boundaries and building location but also
registered easements. An old survey may not show recent changes to the property.
• A condition should be added to agreement requiring the seller to provide an up-to-date
survey.
Limitations on Use
• An easement is usually registered on the title of both properties – the Dominant Tenement
and the Servient Tenement.
• In case the subject property is a servient tenement, the easement may impose restrictions
on property use and can affect its market value.
• Further, a single property may be subject to several easements.
• Properly documented easements help minimize risks.
MiniCram Notes 51
10.6 Zoning
Rezoning and Minor Variances

• Registrants can reduce Errors and Omissions risk by – (i) awareness of zoning by-laws, (ii)
properly investigating permitted uses, and (iii) time and complexities involved in rezoning
applications for change of use.
• Applications for Rezoning and Minor Variance are made to the local Committee of
Adjustment.
• The municipality may decide to approve, make changes or reject the application and it may
take anywhere from 4 to 6 months’ time.
➢ Rezoning is necessary if the buyer wants a different use than currently permitted in
the zoning by-law. The By-Law Amendment application is considered only if the new
use is still consistent with the Official Plan.
➢ Minor Variance application is needed when a change in current use does not align
with the zoning by-law, but generally adheres to its intent.
Non-Conforming Use
• A Non-Conforming Use is that which does not comply with and is prohibited under the
present zoning.
• This typically occurs when the municipality makes changes to zoning.
• Legal Non-Conforming Use refers to a use which existed before the passage of a zoning
by-law, but it is allowed to continue.
• Continuous Use: A Legal Non-Conforming Use must be continuous with no interruptions. If
interrupted, the Legal Non-Conforming status of the property is disturbed.
Demolition and Renovation

• Older downtown core areas typically undergo renovations, demolitions and expansions.
• Demolition: The new structure must conform to the current zoning by-law.
• Renovations: The Legal Non-Conforming status is not changed.
Expansion
• When expanding the current structure, the municipality compares the current use with the
intended use.
• Expansion may not be permitted if it creates a new non-conformity.
• Decision for approval of extension depends on three factors –
➢ Significant change from existing use,

➢ Impact on the adjacent properties regarding traffic, noise, etc., and
➢ The interests of the community.
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MiniCram Notes 52
11. REGSITRATION AS A SALESPERSON
11.1 Working with a Brokerage
Employee vs. Independent Contractor

• All real estate salespersons and brokers are treated as Employees of the brokerage as per
REBBA 2002.
• The difference between an Employee and an Independent Contractor is only for the
purposes of taxation.
• The brokerage is responsible to advise, counsel, instruct and assist salesperson in
performance of duties.
• The brokerage is responsible for trading activities of its employee salespersons and brokers.
Employee Status
• The brokerage normally bears the operating expenses and the salesperson does not pay
any desk fee.
• Salespersons have to pay their own RECO registration fees and insurance premiums.
• Salespersons either get a fixed salary or salary plus commission.
• Some employee benefits may also be available such as Employment Insurance, Canada
Pension Plan, group medical benefits, etc.
• Taxes are usually deducted at source.
Independent Contractor
• Salesperson agrees to pay desk fees, a percentage of commission (commission split) or
flat fee, and other administration charges to the brokerage.
• Salesperson agrees to abide by brokerage rules and regulations for conducting business
as given in the Brokerage Policy Manual.
• Salesperson also bears the expenses of maintaining their own registration, board
memberships and educational courses.
• The commission charged by salespersons from clients is solely determined by them and
belongs to the salesperson (subject to deductions).
• However, the total commission is first collected by the brokerage, distributed to any co-
operating brokerage and then split with the salesperson.
• Independent Contractor salespersons are responsible for their own taxation matters and all
personal expenses related to advertising, insurance, vehicle, etc.
RECO Registration Application

• The application must be complete in all respects, signed by the applicant and the Broker of
Record before sending to RECO.
• Current or past bankruptcies or proposals must be disclosed in application.
• Similarly, any current or past criminal charges or convictions must also be disclosed.
• Application package includes completed application form, registration fees, transcript of the
third course and a Police Clearance Certificate in original.
• After initial review and approval an invoice is sent to the brokerage and the applicant for
payment of RECO Insurance premium.
MiniCram Notes 53
• Once the insurance is paid, the salesperson is officially registered and ready to trade in real
estate.
• RECO may obtain credit information of the applicant and may refer to a criminal search
before approving the registration application.
• The most common cause of delay in review of application is an incomplete application.
Utilizing the Waiting Time

• Conduct market research in the local market regarding trends, prices, recent changes, new
developments, etc.
• Attend training courses related to prospecting, listing presentations, qualifying buyers,
negotiating skills, using the MLS ® system, etc.
• Learn as much as possible from other colleagues in office by making specific and general
enquiries.
• Build a database of everyone you know e.g. your friends, acquaintances and business
contacts.
• Drive around in your area and surveys all For Sale, Sold and For Sale by Owner signs.
• Prepare an effective Listing Presentation so you can be successful in the very first call from
a prospective seller.
11.2 Prospecting Methods
Warm and Cold Calling

• A Warm Call refers to a call made to a known person and should be used effectively.
• A Cold Call is made to an unknown person and should be avoided in the beginning.
• New salespersons should focus on their sphere of influence (warm contacts).
• In the beginning, contacting known people and referrals is a good practice.
• The chances of rejection of a call in warm calling are much less than in cold calling.
• When making cold calls, the salespersons must not call any person who is on the National
Do Not Call List.
Open House
• An open house is a warm prospecting technique.
• Salesperson may arrange an open house for any listing of the brokerage provided that the
listing salesperson and the sellers agree.
• Open house is effective for 3 reasons –
➢ Potential buyers get a chance to view the listed property,
➢ The seller is convinced that the salesperson is making a sincere effort to sell the
house, and
➢ The salesperson gets the opportunity to meet new prospective buyers.
Private Sellers
• For Sale by Owner (FSBO) sellers are usually motivated to sell the property.
• Salespersons should keep in mind that these sellers might have had bad experiences with
another salesperson or brokerage in the past.
• Some reasons why people want to sell privately include –
➢ They may be thinking of saving commission which is actually the buyer’s saving.
MiniCram Notes 54
➢ They may be under an impression that they can negotiate better than any
salesperson.
➢ They think that the right buyer will find their property.
➢ They are just trying for a month or so.
➢ They think that all they need is a lawn sign and are not aware of marketing exposure
if the property is listed with a brokerage.
Expired Listings
• Expired listings are also an excellent source of business.
• The salesperson should keep in mind that they may get a negative response due to failure
of the previous brokerage to sell the property.
• The seller might have been thinking that the brokerage did not do enough to sell the property
while a high asking price could be the reason.
• Salespersons should not contact the seller of any expired listing if the listing contains
specific instructions from the seller not to contact him after expiry.
11.3 Telemarketing
The National Do Not Call List (DNCL)

• Cold calling by real estate professionals is under federal legislation.
• Some exceptions apply such as existing relationship with the Brokerage.
• Salesperson may make a cold call to someone if he/she has specifically asked to contact
him/her.
• Some people may allow a salesperson to call them when they visit their open houses.
Existing Relationship
• 6 Months – If the person has made an enquiry.
• 18 Months – If the person has purchased or rented property from the brokerage.
• 18 Months – If the person had a written agreement with the brokerage, e.g. a Listing
Agreement or a Buyer Representation Agreement.
11.4 Canada Anti-Spam Legislation (CASL)
• Purpose: To promote the efficiency and adaptability of Canadian economy by discouraging

use of electronic means for –
➢ Impairing availability, reliability, and optimal use of electronic media,

➢ Imposing additional costs on businesses and consumers,
➢ Compromising privacy and security of confidential information, and
➢ Undermines the confidence of Canadians in the use of electronic means of
communication for commercial activities.
Commercial Electronic Message (CEM)

• CEM is an electronic message that asks for participation in some form of commercial
activity.
• It includes messages related to real estate sales and promotion of goods, services, a
specific individual or sale of real property.
MiniCram Notes 55
• Messages include those sent to email addresses, Facebook accounts, Twitter accounts,
telephone accounts and through Instant Message (IM) service.
Consent
• The sender of CEM must get consent (written or implied) of the recipient, identify
himself/herself, get consent to send message, the specific purpose for which consent is
requested, and provide a method to withdraw consent.
• If challenged, the responsibility of proof is on the sender.
• Express consent must be through opt-in method and not by op-out method.
• Referrals: Consent is not required if it is a simple referral from a business that has existing
relationship with the consumer. Existing relationship refers to a business relationship or a
non-business relationship with the past 2 years.
• Penalties: Penalty for violation could be up to $1 million for an individual and up to $10
million for a business.
Exceptions
• CASL does not apply to Twitter posts, Facebook wall posts, websites, blogs, two-way voice
communication between individuals and, faxes and voice recordings sent to telephone
accounts.
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MiniCram Notes 56
PART II – MATH CONCEPTS & COMMERCIAL AGREEMENTS
BASIC COMMERCIAL MATH
12.1 Building Cost Analysis
Floor Area Ratio (FAR)

FAR = Gross Floor Area ÷ Gross Lot Area
Gross Building Area = Gross Lot Area X FAR
►Note: Floor Area Ratio is NOT a percentage.
Example 1: If the lot size is 4,800 square feet and the total floor area is 12,480 square feet,
what would be the floor area ratio?
FAR = 12,480 ÷ 4,800 = 2.6
Example 2: If the lot size is 8,000 square feet and the floor area ratio in a particular zone is
3.25, what would be the maximum building size that can be built?
Building Size = 8000 X 3.25 = 26,000 Square Feet
Buildable Land Cost

Buildable Land Cost = Total Land Cost ÷ Buildable Area
Example: An investor is looking to purchase 2.5 acres of land at the cost of $280,000 per acre.
If the municipal zoning by-laws permit a maximum of 35% coverage, what would be his cost of
land per buildable square foot? (1 Acre = 43,560 Square Feet)
Total Land Cost = 280,000 X 2.5 = $700,000
Total Area = 2.5 X 43,560 = 108,900 Square Feet
Buildable Land Area = 108,900 X 35% = 38,115 Square Feet
Buildable Land Cost = 700,000 ÷ 38,115 = $18.37 Per Square Foot
Design/Build: Return on Investment

Return = Rent ÷ Total Construction Cost X 100
Example: Investor Jim is analyzing a Design/Build option for his tenant client based on his
return on investment in building costs. The selected parcel of land is 5 acres is size listed at
$245,000 per acre. The zoning by-laws permit a maximum coverage of 40% of the total lot size.
The soft cost is $10.50 per square foot; hard cost is $37.95 per square foot while the
development cost per square foot is $12. If the tenant client is ready to pay annual rent of $9.50
per square foot, what would be Jim’s return on investment? (1 Acre = 43,560 Square Feet)
Land Cost = 5 X 245,000 = $1,225,000
Buildable Area = 5 X 43,560 X 40% = 87,120 Square Feet
Buildable Land Cost = 1,225,000 ÷ 87,120 = $14.06 Per Square Foot
MiniCram Notes 57
Construction Costs = 10.50 + 37.95 + 12 = $60.45 Per Square Foot

Total Land and Building Costs = 14.06 + 60.45 = $74.51 per Square Foot
Return on Investment = 9.50 ÷ 74.51 X 100 = 12.75%
12.2 Investment Properties
Leverage
Leverage Ratio = Mortgage Loan ÷ Value X 100
Example: Investor Jim has $750,000 equity available and is considering purchase of an office
building for $2,275,000. The balance amount would be financed through a local lender.
Calculate the leverage ratio.
Purchase Price (Value) = $2,275,000
Down Payment (Equity) = $750,000
Mortgage Loan = 2,275,000 – 750,000 = $1,525,000
Leverage Ratio = 1,525,000 ÷ 2,275,000 X 100 = 67%
Cash Flow and Equity Return

1. Effective (Operating) Income = Potential Income – Loss%
2. Net Income = Effective Income – Operating Expenses
3. Cash Flow = Net Income – Annual Debt Service
4. Equity Return = Cash Flow ÷ Equity X 100
5. Overall Return = Net Income ÷ Purchase Price
Example 1: An investor is considering purchase of a commercial property for $1,020,000 with

loan to value ratio of 70%. The loan amount is financed at an interest rate of 6.5% per annum,
compounded semi-annually not in advance to be amortized over a period of 25 years. The
monthly mortgage payment is estimated to be $4,782.54. The annual operating income of this
property is 240,000 with annual operating expenses estimated to be 150,000. What would be
the Overall Rate of Return, the Cash Flow and the Return on Equity?
Part I
Net Income = 240,000 – 150,000 = $90,000
Overall Return = 90,000 ÷ 1,020,000 X 100 = 8.82%
Part II
Equity = 1,020,000 X 30% = $306,000
Annual Debt Service = 4,782.54 X 12 = $57,390.48
Cash Flow = 90,000 – 57,390.48 = $32,609.52
Equity Return = 32,609.52 ÷ 306,000 X 100 = 10.66%
MiniCram Notes 58
Example 2: Investor Bright is considering purchase of an apartment building having 65 units.

The building is listed for $5,500,000 and Bright is ready to pay this price provided it meets his
investment objectives. Bright has 35% equity available and will arrange a mortgage loan for the
balance of purchase price. The mortgage will be interest only with an annual interest rate of
6.5% per annum with payment at the end of each year. The financial statements given by the
seller provide the following information:
• The annual potential rental income is $1,050,000.
• The vacancy and bad debt is 4.5% of annual potential income.
• Other income from parking and laundry is $28,800.
• The annual operating expenses are 58.5% of the annual operating expenses.
Based on above information, what would be the Return on Equity from this purchase?
Part I: Calculate Annual Debt Service

Down Payment = 5,500,000 X 35% = $1,925,000
Mortgage Loan = 5,500,000 X 65% = $3,575,000
Annual Debt Service = 3,575,000 X 6.5% = $232,375
Part II: Calculate Net Operating Income

Operating Income = 1,050,000 – 4.5% + 28,800 = $1,031,550
Annual Expenses = 1,031,550 X 58.5% = $603,457
Net Income = 1,031,550 – 603,457 = $428,093
Part III: Calculate Cash Flow and Equity Return

Cash Flow = 428,093 – 232,375 = $195,718
Equity Return = 195,718 ÷ 1,925,000 X 100 = 10.17%
12.3 Capital Cost Allowance
Capital Gains Tax

Capital Gain = Sale Price – Adjusted Cost Base – Cost of Sale
Taxable Capital Gain = Capital Gain X 50%
Example: A commercial building was purchased for $540,000 approximately 18 years ago. The
buyers spent $150,000 on its renovations. The adjusted cost base was established at $870,000.
The building was sold last year for $1,260,000. The cost of sale was $54,000 which included
legal expenses and realty commissions.
What was the amount of Capital Gain and Taxable Capital Gain?
Capital Gain = 1,260,000 – 870,000 – 54,000 = $336,000
Taxable Capital Gain = 336,000 X 50% = $168,000
MiniCram Notes 59
Declining Balance Method (Half Year or 50% Rule)
For New Business

1. Count the days in the Year of Incorporation
2. CCA for First Year = Cost of Purchase X CCA Rate X 50% X Days ÷ 365
For Existing Business

1. Calculate CCA on the Previous UCC using Full CCA Rate
2. Calculate CCA on New Purchase using Half CCA Rate
3. UCC for Jan 1st of Next Year = Previous UCC + New Purchase – Total CCA
Example 1: Owner Michael incorporated a business on August 30, 20xx (not a leap year) and
purchase $18,000 worth of office equipment and furniture on September 15, 20xx. The CCA
class for these items is 20%. Calculate the Capital Cost Allowance Michael can claim on his
first-year tax return.
Number of Days in the days = 124 (August 30 to December 31)
CCA for First Year = 18,000 X 20% X 50% X 124 ÷ 365 = $611.51
►Note: Ignore the date of purchase.
Example 2: Cram Cookies Inc. started its bakery operations several years ago. As of January
1st, 2012, the company had equipment with undepreciated capital cost (UCC) of $24,600. On
May 15th, 2012, Cram Bakery Inc. purchased additional equipment for $10,800. The CCA rate
for this class of equipment was 20%. How much depreciation Cram Bakery Inc. had claimed on
its 2012 tax return and what was the undepreciated capital cost as of December 31, 2013?
Part I: Tax Year 2012

Total Undepreciated Capital Cost = 24,600 + 10,800 = $35,400
CCA on Previous UCC Amount = 24,600 X 20% = $4,920
CCA on New Purchase in 2012 = 10,800 X 10% = $1,080
CCA for Year 2012 = 4,920 + 1,080 = $6,000
UCC as of December 31, 2012 = 35,400 – 6,000 = $29,400

UCC as of Jan 1, 2013 = $29,400
CCA for 2013 = 29,400 X 20% = $5,880
UCC as of December 31, 2013 = 29,400 – 5,880 =$23,520
CCA For Properties (Land & Building)

Building Cost = Purchase Price – Land Price
MiniCram Notes 60
►Note: Land does not depreciate. CCA is only on Building and Improvements. Only the CCA
Rate is different, the calculation is similar to Office Equipment and Furniture.
Example: A commercial property is purchased in April 2012 for $1,560,000. The land and
building allocation of the purchase price is 40/60. The CCA rate for the building and
improvements is 4%. What would be the Undepreciated Capital Cost at the end of 2 years of
ownership?
Building Cost = 1,560,000 X 60% = $936,000
CCA for Year 1 = 936,000 X 2% = $18,720
UCC for End of Year 1 = 936,000 – 18,720 = $917,280
CCA for Year 2 = 917,280 X 4% = $36,691
►Quick Method: 936,000 – 2% – 4% = $880,589.
Recapture of CCA
➢ Recapture of all or part of CCA claimed occurs if the improvement allocation at the time of
sale has been maintained or has increased since acquisition.
➢ If there is actual loss, the Recapture amount is Zero.
Example: Investor Ingrid purchases a commercial building five years ago for $2,440,000 with
improvement allocation of 65%. The CCA rate for this type of building was 4%. During all these
years a total of $265,877 has been claimed as CCA. She did not make any major capital
improvements during the years of ownership. Ingrid sells the property now for 3,280,000 with
improvement allocation of 60%.
What would be the Recapture of CCA on this sale of the property?

Improvement Allocation at the Time of Purchase
= 2,440,000 X 65% = $1,586,000
Improvement Allocation at the Time of Sale
= 3,280,000 X 60% = $1,968,000
The improvement allocation at the time of sale is greater than the allocation at the time of
purchase.
The entire CCA amount $265,877 would be recaptured.
Recapture Amount = $265,877.
12.4 Commercial Leasing
R/U Factor
R/U Factor = Rentable Area ÷ Usable Area
Rentable Area = Usable Area X R/U Factor
MiniCram Notes 61
Example: A commercial building has a total of 120,000 square feet of rentable area and
105,000 square feet of usable area. If a tenant has 3,680 square feet of usable area, what
would be his rentable area rounded to nearest square foot?
R/U Factor = 120,000 ÷ 105,000 = 1.142857
Rentable Area for Tenant = 3,680 X 1.142857 = 4,206 Square Feet
Base Minimum Rent

Base Minimum Rent = Rentable Area X Per Square Foot Rent
Example: A tenant leases a small office space with 1,450 square feet of usable area. The R/U
factor for the building is 1.2691 for all tenants. The base minimum rent for the tenant is $12.50
per square foot per annum. What would be his monthly rent?
Rentable Area = 1,450 X 1.2691 = 1,840 Square Feet
Base Minimum Rent = 1,840 X 12.50 = $23,000
Monthly Rent = 23,000 ÷ 12 = $1,916.67
Additional Rent (Proportionate Share of Expenses)

Method I - Total Operating Expenses X Tenant’s Percentage Area
Method II - Total Operating Expenses ÷ Total Area X Tenant’s Area
►Note: When using Method II, both areas must be similar, either both must be Rentable or both
must be Usable
Example: A tenant leases a retail unit in a shopping centre that has 140,000 square feet of
rentable area and 122,000 of usable area. The tenant’s usable area is 4,200 square feet. The
total operating expenses for this shopping centre are estimated to be $2,226,500 annually.
What would be the tenant’s annual additional rent?
Additional Rent = 2,226,500 ÷ 122,000 X 4,200 = $76,650
►Note: Use Method II. Take the Usable Area as it is known for both the tenant and the shopping
centre. Do not calculate the R/U factor or tenant’s rentable area because it is not required for this
question.
Percentage Rent
1. Base Minimum Rent = Rentable Area X Minimum Rent PSF
2. Base Minimum Sale = Base Minimum Rent ÷ Percentage
3. Percentage of Sale = Gross Sale X Percentage
4. Percentage Rent = Percentage of Sale – Base Min Rent
5. Applicable Rent = Base Minimum Rent + Percentage Rent
MiniCram Notes 62
►Notes: a) Percentage Rent is applicable only if amount of Percentage of Sale is more than the
Base Minimum Rent.
b) If amount of Percentage of Sale is equal or less than the Base Minimum Rent, the
Percentage Rent is not applicable.
c) Even if Percentage Rent is not applicable, the Applicable Rent is known as ‘Total of
Base Minimum and Percentage Rent’. In that case it will be same as Base Minimum Rent.
Example 1: The base minimum rent for a retail unit is $13.50 per square foot per annum. The
percentage rent clause specifies 5.5% of gross annual sale over the base minimum. A tenant
leases rentable area of 2,200 square feet unit in this shopping centre. The gross annual sale for
the first year is expected to be $700,000. What would be the base minimum rent, the base sale
amount and the percentage rent?
Base Minimum Sale = 29,700 ÷ 5.5% = $540,000
►Note: Percentage Rent is not payable if the Gross Sales do not exceed $540,000.
Percentage of Gross Sales = 700,000 X 5.5% = $38,500
Rent Payable in the First Year = $38,500
►Note: This is the ‘Total of Base Minimum and Percentage Rent’.
Percentage Rent = 38,500 – 29,700 = $8,800
Example 2: A tenant in a shopping centre is considering lease of a retail unit that has usable
area of 1,400 square feet. The landlord calculates R/U factor based on total rentable area 8,400
square feet and total usable area of 7,240 square feet. The percentage lease clause provides
for 5% of gross sales over the base minimum. The rent for the current year is $12.25 per square
foot of rentable area. The tenant expects gross sales of $450,000 in the first year of operation.
The total operating expenses for the shopping centre are estimated to be $115,500.
Based on the above information, calculate the following:

I. Tenant’s Base Minimum Rent for the first year.
II. The Base Minimum Sale required to meet the percentage rent obligation.
III. The Total of Base Minimum and Percentage Rent.
IV. The Additional Rent payable per square foot of rentable area.
V. The Total Rent for the first year
Part I
R/U Factor = 8,400 ÷ 7,240 = 1.1602
Base Minimum Rent = 1,624 X 12.25 = $19,894.
Part II
Base Minimum Sale = 19,894 ÷ 5% = $397,880.
MiniCram Notes 63
Part III
Percentage of Sale = 450,000 X 5% = $22,500
Total of Base Minimum and Percentage Rent = $22,500
►Note: Percentage Rent = 22,500 – 19,894 = $2,606.
Part IV
Additional Rent = 115,500 ÷ 8,400 X 1,624 = $22,330
Part V
Total Rent = Total of Base Minimum + Percentage Rent + Additional Rent
Total Rent = 19,894 + 2,606 + 22,230 = $44,730
Rent Concessions
Annual Rent = Base Min & Percentage Rent + Additional Rent – Concessions
Example: The rentable area leased by a retail tenant is 1,800 square feet with a base minimum
rent of $12.50 per square foot per annum. The percentage rent is 4.5% of gross sales over the
base minimum and it is expected to be $650,000. The landlord is willing to give $12,000
concession for tenant improvements in the leased unit and is also offering 3 month rent free
period for base minimum rent only. The additional rent payable by the tenant is $15.50 per
square foot annually.
Based on above information, what would be the total annual rent for the first year per square
foot of rentable area?
Part I: Calculate Total Annual Rent

Percentage of Sale = 650,000 X 4.5% = $29,250
(This amount is the Total of Base Minimum and Percentage Rent)
Percentage Rent = 29,250 – 22,500 = $6,750
Additional Rent = 1,800 X 15.50 = 27,900
Total Rent for the First Year = 22,500 + 6,750 + 27,900 = $57,150
Part II: Calculate Concessions

3 Month’s Base Minimum Rent = 22,500 ÷ 12 X 3 = $5,625
Improvement Concession = $12,000
Total Concessions = 5,625 + 12,000 = $17,625
Part III: Calculate Rent for the First Year

Rent Payable in First Year = 57,150 – 17,625 = $39,525
Per Square Foot Rent = 39,525 ÷ 1,800 = $21.96
MiniCram Notes 64
12.5 Business Valuation
Direct Capitalization Method

Value = Net Operating ÷ Income Cap Rate
Example: The annual net operating income of a business after deducting the operating
expenses is $58,000. This type of business has a capitalization rate of 12.5%. What would be
the estimate of value?
Value = 58,000 ÷ 12.5% = $464,000
Gross Profit Multiplier Method

Value = Gross Profit X Gross Profit Multiplier
►Note: Gross Profit Multiplier is NOT a percentage.
Example: The annual gross profit of a restaurant business is $35,500. Market research
suggests a Gross Profit Multiplier of 2.5. What would be the estimate of value?
Value = 35,500 X 2.5 = $87,750
Weighted Average Method
Example: A small hardware store in Cram City has provided some information on its gross profit
to the listing brokerage. The amounts were $122,500 for 2010; $126,200 for 2011; $132,000 for
2012 and $137,800 for 2013. The brokerage applies a weighting to these profits as follows:
Year 1 – 4, Year 2 – 3, Year 3 – 2 and Year 4 – 1. The year 1 is considered the most recent
year for calculations. What would be the weighted average of gross profits for these four years?
Calculate Profits based on Weightage
137,800 X 4 = $551,200
132,000 X 3 = $396,000
126,200 X 2 = $252,400
122,500 X 1 = $122,500
Add all these numbers = 1,322,100
Divide by 10 (4+3+2+1) = 1,322,100 ÷ 10 = 132,210
Weighted Average of Gross Profits = $132,210
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MiniCram Notes 65
AGREEMENT OF PURCHASE AND SALE - COMMERCIAL
➢ Note: The Agreement of Purchase and Sale – Commercial may be provided in the
exam for your reference.
➢ Read the story very carefully. Read the questions and analyze property. The question may
be asking you to find critical mistakes only.
Offer Date: The Date on the first page and the date with Buyer’s signature need not be same.
Buyer and Seller Names: Check if they are individual sole proprietors or corporations.
Purchase Price and Deposit: Match the amounts in words and figures. If counter offer, check
both parties have initialled.
Deposit: Must be payable to Listing Brokerage.
Irrevocability: First time, only the word ‘Buyer’ is inserted. In Counter Offer, the word ‘Buyer’
must be replaced with ‘Seller’. Check initials of both parties. Irrevocable date may be extended
by Seller.
Notices: Missing fax numbers or email addresses is acceptable.

Fax numbers and email addresses are not inserted in case of Multiple Representation.
If only one set of fax number or email address is given, the buyer may be a Customer of the
Listing Brokerage.
Title Search: The Requisition Date must be well after the last date in Conditions.
Present Use must not have Zoning. Blank space in Present Use is acceptable.
Signatures: For Individuals, only signatures are required. The date besides buyer’s signatures
need not be the same date as the date on first page of the offer.
For Corporations (Inc. or Ltd.) – Name of Corporation, then Signature and then either
“Corporate Seal Affixed” or “I Have the Authority to Bind the Corporation.”
All Signatures must be witnessed.
Confirmation of Acceptance: Must be before the last Irrevocable Date and Time on Page 1.
Make sure that it is signed by correct party.
• If Seller Accepts Original Offer (No Change in Offer) – One of the Sellers Signs.
• If Buyers Accept the Counter Offer (Changes in Offer) – One of the Buyers Signs.
Information on Brokerages: Read the scenario carefully. There is only one Brokerage in case of
Multiple Representation or in case Buyer is Customer of Listing Brokerage.
Acknowledgement: Must be on or Before the Irrevocable date on Page 1. Missing Addresses or

missing Lawyer Information is not a mistake.
Commission Trust Agreement: Signed by Salespersons. Missing or blank space is Ok.
MiniCram Notes 66
Schedules
Schedule A: Match the dates and Buyer/Seller Names as on Page 1.
Order of Clauses: Pay the Balance always appears first. But if there is Supplementary or
Additional Deposit clause that should be first. If any handwritten clause is inserted later, then the
order is not important.
Pay the Balance Clause: Must have the 6 Essential Elements-

➢ Who Pays (Buyer),
➢ Amount (Further Sum of),
➢ Subject to Adjustments,
➢ To Whom (Seller),
➢ When (On Completion), and
➢ Mode of Payment (Bank Draft, Certified Cheque, Wire Transfer, etc.).
Check the Amount of Balance.

Balance = Purchase Price – Seller Take Back (S) – Assumed Mortgage (A) – Deposits (D)
Interest Disclosure Clause: If the Trust Account of Brokerage is earning Interest, there must be
a clause disclosing the Interest Rate and how much Interest would be paid subject to
Deductions.
Mortgage Clauses:
• Mortgage can be First or Second. Any Mortgage can be New or Assumed or Seller Take
Back.
• Seller Take Back mortgage can be the First Mortgage while New mortgage can be the
Second.
• The Name of the Lender is not required for New First Mortgage but is required for Assumed
Mortgage.
• Amortization Period is optional but the Term (Due Date or Expiry Date) must be there.
• Postponement Clause is required if the First Mortgage expires before the second.
Counter Offer:
• All changes must be initialled by both parties.
• Check if the Irrevocable date has been changed by Seller.
• Check the Amounts and Dates very carefully.
• Calculate Balance on Schedule A after considering all changes.
• Acceptance must be before Irrevocable date by Buyer (Not by Seller).
------------------
MiniCram Notes 67
AGREEMENT TO LEASE - COMMERCIAL
➢ Note: The Agreement to Lease – Commercial may be provided in the exam for your
reference.
Critical Mistakes in Offer
Read the story very carefully. Read the questions and analyze property. The question may be
asking you to find critical mistakes only.
Clause 1 – Premises: Rentable Area or Usable Area. If Usable Area is given, Deposit cannot be
calculated. If Rentable Area is given, always calculate the Monthly Rent first. Verify that the
Deposit is first and last month rent plus HST.
Clause 2 – Use: Should be very specific i.e. Professional, Doctors, Lawyers, etc. If Retail is
written, it is too vague or a mistake. Should be specific such as Jewellery, Clothing, etc.
Clause 3 – Term of Lease:

• Term: Should be given in Months i.e. 36 months or 60 months. If Years are mentioned, it is
a critical mistake.
• Commencement/Termination: Must be mentioned. Check that dates are valid for the term.
• Renewal Term: Should always be 1 Additional Term of 36 Months/60 Months.
Clause 4 – Rental: Check the calculations: Example $24 Per Sq. Ft x 2660 = 63,840 /12 =
$5,320 Per Month. Check all rents given in the term. There may be a mistake in calculations.
Clause 5 – Deposit: Who is it payable to? Usually it is the Listing Brokerage.
• In case of Lease Agreement – it may be in the name of Landlord i.e. Generic Holdings
Inc.
• If Landlord is holding the Deposit – Does the Landlord have a Trust Account? If not, the
words “To Be Held in Trust” should be deleted and initialled by both parties.
Initials: Initials of Landlord and Tenant should be at the bottom. Check if initials are switched or
any initials are missing.
Clause 6 & 7 – Services: Make sure the check mark is in proper place.
• Gross Lease: Fixed amount of payment should be there i.e. $1,200 per month.
• Net Lease: Tenant pays Base Rent + Some specified expenses.
• Net Net Lease: Base rent + Some Additional Rent.
• Net Net Net Lease: Carefree to Landlord. Tenant is responsible for all Rent and Additional
Rent except Landlord’s Mortgage and Income Tax payments.
Clause 11 – Landlord’s and Tenant’s Work: There should be a separate Schedule i.e. Schedule
B or Schedule C.
Clause 12 – Signage: The wording on signage may be too lengthy.
MiniCram Notes 68
Signatures and Seal: Check Signatures and one the following-
• If Seal is Used: Corporate Seal Affixed, or

• If No Seal: “I Have the Authority to Bind the Corporation” or “Authorized to Bind the
Corporation”.
Dates: All Dates must be checked. If Irrevocable Date and Time has expired, it is a critical
mistake.
Counter Offer:
• All changes must be initialled by both parties.
• Check if Irrevocable Date has been changed by the Landlord.
• Check the Amounts and Dates very carefully.
• Acceptance must be before Irrevocable by the Tenant (Not by the Landlord).
------------------
MiniCram Notes 69
PART III - PRACTICE QUESTIONS
SAMPLE EXAM 1
Take a blank sheet of paper to write your answers. The Quick Answer Key is located after the
last question followed by Detailed Answers.
➢ Note: A blank or completed Agreement of Purchase and Sale – Commercial and/or

Agreement to Lease – Commercial may be provided in the exam. You can refer to
that form to answer related questions.
1. Considering the supply and demand forces in commercial real estate, when available office
space is high, and demand is low, which of the following would be the effect on rental rates?
A. Rates will decrease.
B. Rates will increase.
C. There will be no effect.
D. It depends on negotiations for a particular building.
2. Which of the following is typically not a part of requirements in a commercial zone?

A. Minimum front, side and rear yard requirements.
B. The permitted use of a particular vacant land or building.
C. The procedures for creating a commercial subdivision.
D. The maximum coverage of a lot and height restrictions.
3. Which of the following would be viewed as a limitation of ground lease in commercial retail
sector?
A. Ground lease is beneficial to a tenant who wants to leverage existing financial resources
and use the land at a lower cost as opposed to purchase of property.
B. The landlord benefits from having a long-term tenant and avoid the cost of building the
structure.
C. The building itself becomes the security of the lease for the landlord and lease may be
terminated in case of payment default by the tenant.
D. If expansion of the building is required, the tenant may face difficulties if the landlord
obstructs desired expansion.
4. With respect to infill zoning requirements, which of the following statements is not correct?
A. Infill zones are typically found in existing inner city neighbourhoods.
B. The purpose of infill zones is to lessen urban sprawl and encourage better utilization of
municipal services.
C. The setback requirements for multi-residential, low rise buildings may be similar to older
structures.
D. Multi-residential structures within infill zones do not permit any type of commercial use.
5. Sale of farmland may be subject to Capital Gains Tax. Which of the following is a correct
statement in this regard?
A. The seller of the farm must pay Capital Gains Tax whenever farmland is sold.
B. Exemption for qualifying farmland is capped at $750,000.
MiniCram Notes 70
C. Similar rules apply to a farmland without depreciable property or a farmland with

depreciable property.
D. Sale of farmland is treated in a completely different manner than other type of improved
real property for the purpose of Capital Gains Tax.
6. Which of the following statements is correct regarding floor load in industrial buildings?
A. Floor load requirements apply only to live load and dead load but not to roofs, balconies,
elevated walkways or footbridges.
B. Floor load refers to live load that includes weight of the persons, equipment and stored
materials.
C. Dead load refers to weight of the structure and weight of the stored materials but not the
load of any persons.
D. Floor load requirements are only used for industrial and commercial structures but not
for residential structures.
7. Valuation of industrial buildings involves costing estimates as well as analysis of investor

returns. Which the following statements is correct in this regard?
A. The valuation process may include direct comparison approach and cost approach but
not the income approach because income is seen as a future event.
B. The term hard cost includes the cost of land and excavation but not the cost of building
materials and construction.
C. The term soft cost refers to the cost of project management, engineering, legal and
consultation fees, along with financing charges and connection fees.
D. The overall land cost per square foot is considered for valuation and any increase in land
cost due to zoning restrictions is ignored.
8. Which of the following statements is correct regarding various types of cranes used in
industrial operations?
A. A bridge crane operates on a system of horizontal rails but column-free area inside the
structure is not important.
B. A JIB crane has an arm attached at an angle to a rotating mast that allows for 360
degrees’ movement.
C. A gantry crane is another term used for the bridge crane with the only difference that its
movement is restricted to inside the building.
D. Most industrial buildings have a combination of all three types of cranes for movement
of materials inside the building.
9. Which of the following statements is incorrect regarding farm quotas and marketing boards?
A. The negotiating boards negotiate the terms of produce sale including the minimum price
for a specific farm produce.
B. Farm quota boards establish the maximum amount of production and marketing for each
farmer.
C. Farm quota for production and marketing is automatically transferred to buyer when a
farm property is sold.
D. Farm board may have the authority to establish sale price of produce but may not be
authorized to set limits on production.
MiniCram Notes 71
10. The Nutrient Management Act sets out regulations for storage, handling, transportation and
handling of commercial fertilizers. It also sets out minimum distance requirements for building
farm properties.
Which of the following is a correct statement in this regard?

A. The MDS I requirements must be adhered to when building a large livestock barn.
B. The MDS II requirements must be adhered to when building a facility for storage of
livestock or manure.
C. The Nutrient Management Act provides exemption to farmers from obtaining a building
permit for all types of farm buildings.
D. The MDS requirements are similar for storage of commercial fertilizers as well as
livestock.
11. Which of the following would be a serious concern for the buyer of commercial development
land?
A. The otherwise irregular shape of the land and easements are described by an up-to-date
survey.
B. Even though zoning by-laws permit the intended use, some deed restriction may still
prohibit that use.
C. The land development may need amendment to zoning by-law and buyers of several
adjacent lands have made successful attempts.
D. The seller has obtained phase 1 Environmental Audit of land before listing it for sale.
12. Which of the following statements is correct with respect to development of land in rural
areas?
A. It is not possible to obtain amendment to Official Plan or Zoning due to importance of
agricultural operations.
B. If the developers create land lease communities with long term leases of 40 years or
more, they can avoid the subdivision control provisions of the Planning Act.
C. Interested rural communities which oppose development of residential subdivisions may
make an appeal to Ontario Municipal Board against the decisions of local municipality.
D. Obtaining an approval for residential subdivision in rural area is much easier and less
complex than in urban areas.
13. Which of the following statements in correct regarding leverage?

A. Positive leverage refers to the fact that the overall rate of return from investment is
greater than return on equity.
B. Negative leverage refers to the fact that the return on equity is higher than the overall
rate of return.
C. Neutral leverage refers to a situation when there is no difference in return realized by
financing as compared to a situation when no financing is involved.
D. Leverage calculations are done by dividing the purchase price by the amount of loan.
14. The user of a commercial real estate:

A. Is mainly interested in return on invested capital and considers both operations cash flow
and sale proceeds cash flow.
B. Is primarily interested in visibility, access and location of the property.
MiniCram Notes 72
C. Rarely focuses on features which would help in finding good tenants or future resale of
the property.
D. Does not consider overall efficiency including building layout which may affect the
operating costs.
15. The risk element is involved in all major investment decisions.
Which of the following statements is NOT correct in this regard?

A. Risk related to investment in real estate refers to fluctuations in income stream and
vulnerability of that income to external factors.
B. Financial risk refers to increase in interest rates and purchasing power of dollar that may
go down in future.
C. Building risk involves depreciation of the structure as well as unexpected calamities.
D. Market risk involves future taxation matters, overall economic activity and elimination of
forecasted profits.
16. When a business is sold, and a real estate brokerage is involved, the buyer must get a list of
items (fixtures or chattels) not included in the sale. What happens if the seller does not provide
such a list?
A. The buyer does not get any chattels but gets only fixtures because they are fixed to the
property.
B. The buyer gets only chattels but does not get any fixtures with which the seller is running
the business.
C. The buyer gets only the stock and does not get any fixtures or chattels.
D. All items, whether they are fixtures or chattels, with which the seller is running the
business are deemed included in the sale.
17. Your buyer client is interested to make an offer on a franchise business. After you have
drafted the offer, the buyer asks you several questions regarding franchise operations. You
provide the following information in response to buyer's queries:
1. We must obtain a copy of the franchise agreement because a condition in that agreement
may make our offer null and void.
2. The Confirmation of Acceptance will finally be signed by the franchisor and not by the seller.
3. We have to demand a Sale of Business Affidavit from the seller before a binding agreement
takes place and this is mandatory for all business sales.
4. You might incur additional operating and recurring costs because the franchisor may be
charging certain fees on regular basis.
5. One definite advantage of franchise business is that you get a readymade image and also
receive operating assistance from the franchisor.
Which of the above statements is/are correct?
A. Only statements 1, 4 and 5 are correct.

B. Only statements 2, 3 and 5 are correct.
C. Only statements 1, 2 and 4 are correct.
D. Only statements 3, 4 and 5 are correct.
MiniCram Notes 73
18. As per REBBA 2002, when a real estate brokerage is involved in sale of a business, certain
documents must be provided to the buyer before a binding agreement is signed. Which of the
following is a correct statement in this regard?
A. All statements of profit and loss ever since the seller acquired the business.
B. A statement of assets and liabilities of the business for the past 12 months or ever since
the seller acquired the business.
C. A statement of the list of all goods, fixtures, chattels that are excluded from the sale.
D. If no financial statements are available, the listing brokerage must prepare the Sale of
Business Affidavit.
19. There are several different terms used for measurement of area in commercial leasing.
Which of the following statements is correct as it applies to areas in a retail or office building?
A. The R/U Factor for every tenant in a commercial building is same and is based on total
rentable area and total usable area.
B. The rent charged from tenants is based on the actual floor area of the tenant known as
usable area.
C. When rentable area is used for rent calculations, the additional rent is not applicable.
D. A commercial tenant must be given at least 60 days’ notice if the landlord wants to
terminate the lease.
20. A landlord has informed the tenant that he will be required to pay certain expenses in
addition to the base rent. These expenses include proportionate share of maintenance costs,
operating expenses and costs incurred in repair of major structural components of the building.
This type of lease is best described as:
A. Net Lease
B. Net/Net Lease
C. Triple Net Lease
D. Percentage Lease
21. According to the pre-printed wording of the standard Agreement to Lease - Commercial
form, which of the following is a correct statement?
A. Tenants are required to pay for all services provided by the landlord.
B. The rental amounts and the deposit are subject to Harmonized Sales Tax.
C. Tenants may be required to pay additions charges for signage.
D. The landlord and tenant must sign a formal lease before the start of lease.
22. The standard Agreement to Lease - Commercial form includes an Assignment clause.
According to this clause:
A. If the landlord gives consent for assignment of lease or sublet of premises, the tenant
shall be released of all obligations of the contract.
B. The landlord reserves the right to terminate the lease when faced with an assignment
request.
C. The tenant is not permitted to assign the lease without the written consent of the landlord,
which may be withheld without a reason.
D. The tenant may assign the lease or sublet the premises only with the prior written consent
of the landlord, which the landlord shall not withhold unreasonably.
MiniCram Notes 74
23. Negotiations involved in commercial leasing may be viewed from both landlord’s perspective
as well as tenant’s perspective. Which of the following is not a correct statement from tenant’s
perspective?
A. Leasing of prime location may be a better solution because ownership of prime space
may be impractical.
B. Leasing may result in 100% utilization of available financial resources for business
purposes.
C. Default on lease payments is as serious as default on mortgage payments.
D. Leasing may result in better credit standing for the tenant instead of buying because
mortgage would be viewed as a liability.
24. Non-payment of municipal property taxes by a commercial building owner may result in sale
of the property by municipality, known as Municipal Tax Sale. Which of the following is a correct
A. Once the Tax Arrears Certificate is registered on property title, the owner loses the right
to redeem the property by paying tax amount in arrears.
B. Most municipal tax sales are done using the Absolute Auction method where no minimum
bid is reserved.
C. Municipalities provide the owners with a copy of Tax Arrears Certificate and allow them
to pay the cancellation price.
D. Upon receipt of the Cancellation Price the registration of Tax Arrears Certificate
automatically becomes null and void.
25. Which of the following statements is correct with respect to Harmonized Sales Tax (HST)?
A. HST is applicable on all real estate transactions unless a specific exemption applies.
B. Both resale homes and resale commercial buildings are exempted from HST.
C. Registrants working with buyers should insert 'Included In' in the HST clause of
Agreement of Purchase and Sale - Commercial.
D. The sale of an apartment building with less than 50 units would not be subject to HST if
100% of the units are used as residential properties.
26. The Ontario Brownfields Statues Law Amendment Act:

A. Encourages identification of contaminated lands and requires the landlords to clean-up
within 9 months.
B. Provides for identification, clean-up and revitalization of abandoned or contaminated
lands by simplifying development process and protection against future liability.
C. Helps municipalities in making strict laws against any contamination of land in urban
areas.
D. Does not provide any protection to buyers interested to redevelop abandoned or
contaminated lands against future liability because of high imputed costs.
27. Buyer Smart is working with Salesperson Kim of Power Realty Inc. He is curious to know
why there is a Residency clause in the Agreement of Purchase and Sale - Commercial. Which
of the following would be a correct explanation of having this clause?
A. This clause makes it mandatory for all sellers to get a clearance from Canada Revenue
Agency that HST is not payable on this sale.
MiniCram Notes 75
B. This clause makes the agreement conditional upon payment of Capital Gains Tax by a
non-resident seller before the completion date.
C. This clause permits the buyer’s solicitor to request that the seller must provide a
declaration that he is a not a non-resident.
D. This clause permits the buyer to ensure that the seller is not a non-resident and that the
buyer will not be held liable for the Capital Gains Tax on sale, if any.
28. Capital cost allowance calculations for depreciable assets may involve various methods and
classification. When a capital asset is sold, recapture of capital cost allowance may occur.
Which of the following statements is correct in this regard?
A. The undepreciated capital cost of an asset is the capital cost of the asset, less any capital
cost allowance already claimed.
B. Recapture of capital cost allowance occurs at the time of disposition of asset regardless
of the acquisition cost.
C. The half year rule states that the assets purchased after July 1st qualify for only 50% of
allowance.
D. All calculations for capital cost allowance follow the declining balance method.
29. An application for expansion of a legal non-conforming use may not be accepted by
municipality if:
A. The intended use is completely different from the existing use.
B. The intended use will be in compliance with the existing zoning.
C. The interests of the local community are being protected.
D. The expansion will not have any major impact on local planning.
30. Real estate registrants can reduce their errors and omissions risk related to title issues by
taking due care of certain matters associated with a particular property. Which of the following is
not one of these?
A. Including a condition for an up-to-date survey of the property.
B. Asking the seller about any known easements or encroachments on the property and
making further investigations.
C. Relying on a dated survey provided by the seller which was certified by an Ontario Land
Surveyor.
D. Verifying property details using source documents instead of relying on verbal
statements given by the seller.
31. Salesperson Skinny is happy that the buyer client has shown interest in the property which
is being auctioned. She goes on to collect more information about this property and finds out
that the parcel of land next to this property used to be a heavy medical waste recycling plant.
The building was demolished when that plant closed down a year ago. This fact was well known
to the people living in that area. Skinny also finds out that before the auction the property was
on the market for about 8 months but did not sell due to possibility of contaminated soil, being
next to medical waste recycling plant. Acting prudently, Skinny gives all the information to the
buyer. The buyer asks Skinny what they could do to address the issue. Skinny provides the
following information:
1. We will ask the seller to provide a report of Phase 1 of Environmental Audit, which involves
a visual inspection of the land and testing of soil and water samples for possible contamination.
MiniCram Notes 76
2. In case the soil is contaminated, we can ask the seller to have Phase 2 of Environmental
Audit which will take care of the corrective action and the costs involved.
3. Location of nearby medical waste recycling plant has attached a stigma to the property and
we must disclose it when we list one half of this parcel of land for sale.
4. If the sellers can confirm that the soil contamination has been corrected, the stigma is also
removed, and we need not worry about making any disclosures to a potential buyer.
5. After the contamination has been removed it will still take a long time to sell the property and
the stigma will have a negative effect on the market value.
Which of the above statements are correct?
A. Only statements 1 and 2 are correct.
B. Only statements 2 and 4 are correct.
D. Only Statements 3 and 5 are correct.
32. The wording of Residency clause in the standard Agreement of Purchase and Sale –
Commercial provides that:
A. A non-resident seller must pay Capital Gains Tax before completion of the transaction.
B. The buyer of property from a non-resident seller must get a credit within 10 days of
completion of sale.
C. The seller may either provide a certificate to buyer after paying necessary capital gains
tax or credit the buyer for the amount of tax.
D. The seller must provide a statutory declaration that he is not a non-resident seller.
33. Salesperson Kristen has joined Cram Realty Inc. and has received her registration
certificate from RECO. She wants to get started as soon as possible by prospecting in her
farming area. One of the methods of prospecting in real estate does not involve any major
advertising costs. In this particular method, the seller is convinced that the salesperson is
making sincere efforts to sell the property; potential buyers can see the property without having
to make an appointment and the salesperson can expand his client base by meeting more
prospects. This type of prospecting activity is known as:
A. Making cold and warm calls
B. Prospecting with private sellers
C. Holding an open house
D. Calling sellers of expired listings
34. Canada's Anti-Spam Legislation (CASL) impacts real estate registrants when they are
involved in promoting their services or products. Under the Act, a Commercial Electronic
Message (CEM) cannot be sent to anyone without prior written consent. CASL applies to most
electronic methods of communication. Which of the following is considered an exception?
A. Bulk messages sent through a social media platform.
B. Writing a message on someone's Facebook wall.
C. Using bulk email to hundreds of consumers.
D. An electronic message for promoting a residential property.
35. If the lot size is 8,000 square feet and the floor area ratio in a particular zone is 3.25, what
would be the maximum building size that can be built?
MiniCram Notes 77
A. 2,462 Square Feet

B. 7,386 Square Feet
C. 12,308 Square Feet
D. 26,000 Square Feet
36. An investor is looking to purchase 1.8 acres of land at the cost of $335,000 per acre. If the
municipal zoning by-laws permit a maximum of 40% coverage, what would be his cost of land
per buildable square foot? (1 Acre = 43,560 Square Feet)
A. $7.69
B. $19.23
C. $15.38
D. $74.44
37. The purchase price of a commercial property is $1,250,000 with a new first Mortgage of
$900,000. The mortgage has interest rate of 5.5%, compounded semi-annually not in advance,
and the amortization period is 25 years. The monthly mortgage payment is $5,493.52. If the
annual net operating income of the property is $105,800; what would be the Overall Rate of
Return and the Equity Return?
A. 8.46%; 12.78%
B. 10.42%; 13.92%
C. 10.42%; 11.39%
D. 8.46%; 11.39%
38. A business in leased premises is listed for $550,000 but is ultimately sold for $540,000 after
several months on the market. The financial statements of the owner show net profit of
$240,000 and operating expenses of $175,000. What would be the gross profit multiplier for this
business?
A. 1.50
B. 1.75
C. 2.25
D. 3.50
39. The leasehold improvements done by a tenant use the straight-line method of calculation for
capital cost allowance. If a tenant has spent $24,000 on leasehold improvements and this asset
qualifies for 10% CCA class, what would be the undepreciated capital cost after 2 years?
A. $22,800
B. $21,660
C. $19,602
D. $19,200
40. Cram Cookies Inc. started its bakery operations several years ago. As of January 1st, 2013,
the company had equipment and furniture with undepreciated capital cost (UCC) of $28,200. On
May 15th, 2013, the company purchased additional equipment for $12,600. The CCA rate for
this class of equipment was 20%. How much depreciation Cram Cookies Inc. had claimed on its
2013 tax return and what was the undepreciated capital cost as of December 31, 2014?
A. $5,640; $40,800
B. $6,900; $27,120
MiniCram Notes 78
C. $5,640; 28,200
D. $6,900; $33,900
Case Study – 2 Parts
The following two questions are based on interpretation of various clauses found in a typical
commercial lease. Read the question and the clause carefully and answer the questions given
for each.
41. Your tenant client has asked you to explain the concessions included in the landlord’s
standard lease agreement. These concessions are typically included in the ‘Expense Stop’
clause. Which of the following statements correctly describe the purpose of such a clause in the
lease?
A. The landlord wants to limit the amount that the tenant spends on leasehold
improvements.
B. The landlord wants to ensure that there is a limit to the maximum amount of concessions
he would give to tenant for store improvements.
C. The purpose of the Expense Stop clause is to ensure that the tenant is not permitted to
remove any fixtures from the store at the end of the lease.
D. The landlord wants to ensure that the tenant spends a minimum amount on
improvements so that he can maintain uniform standards for fixtures in all stores in the
shopping centre.
42. A standard lease agreement includes a clause named ‘Deferment of Opening’. The clause
reads as follows:
“Notwithstanding the foregoing, the tenant agrees to co-operate in everyday endeavour of
Landlord to achieve an official joint opening of the Shopping Centre (the Official Opening). If
the premises are ready to be opened to the public for business prior to the opening of the
official opening as established by the Landlord, the Tenant shall, at the Landlord’s option and
request defer its opening for business until such Official Opening, in which event the Term of
the Lease shall not commence until the day of such Official Opening, on which day Tenant
shall open its business in the Premises to the public and the term shall commence. Landlord
shall have no liability to Tenant for requiring the Tenant to delay its opening until the Official
Opening”
Which of the following statements correctly describe the purpose of this clause in a commercial
lease?
1. The landlord may be held liable to the tenant if the landlord fails to adhere to the official
opening date.
2. The landlord wants to ensure that the tenant opens his store for business on the official
opening date set by the landlord.
3. The clause releases the tenant of any liability to landlord if he does not open the business
on the official opening date.
4. The lease shall commence on the date agreed even if the official opening date is deferred
by the landlord.
5. The landlord wants to ensure that if the official opening date is deferred, he will not be held
liable for any such delay.
MiniCram Notes 79

Case Study - 3 Parts

Cram Realty Inc. specializes in commercial leasing and is currently working with three different
tenant clients. Binny, the Broker of Record has allocated the following clients to salespersons
Sarah, Skinny and Jenny.
43. Salesperson Sarah is working with the first client of the brokerage. This client has an
accounting business and wants to make an offer to lease 2,140 square feet of usable space in a
3-storey office building. The total rentable area in the building is 41,200 square feet and the total
usable area is 37,465 square feet. The landlord has quoted base rent of $10.50 for the first
year. The annual Common Area Maintenance (CAM) for the building is estimated at $438,800.
Based on the information provided, what would be the annual additional rent for this client over
and above the base minimum rent in the first year?
A. $21,052.33
B. $22,601.88
C. $25,064.25
D. $28,432.05
44. Salesperson Skinny is working with the second client of the brokerage who has an ice
cream parlour. This client is looking to lease a unit with rentable area of 2,840 square feet in a
nearby shopping mall. The total rentable area in the mall is 120,000 square feet and the
Common Area Maintenance (CAM) is estimated to be $1,650,000. The minimum rent payable
for the first year is $15.50 per square foot of rentable space. The lease has a percentage rent
provision that provides for percentage rent of 6% of gross sales over the base minimum. This
client is expecting gross sales of $850,000 in the first year.
Based on the information provided, calculate the total of the base minimum and percentage rent
per square foot of the rentable space for this client during the first year.
A. $16.85
B. $17.96
C. $18.28
D. $26.43
45. Salesperson Jenny is working with the third client of the brokerage. This client is looking at
two different shopping centres. The details of available units in these centres are as follows:
Eastgate Mall: The available rentable area is 2,105 sq. ft. The annual base rent is $15,788.
Based on sales from other similar stores, the client estimates the percentage rent would be
$3,338. The additional rent is $36,838. The landlord is willing to give a rent-free period of 2
months for base rent and will also pay for $10,000 worth of tenant improvements in the first
year.
MiniCram Notes 80
Westgate Mall: The available rentable area is 2,155 sq. ft. The annual base rent is $13,838 and
the percentage rent based on sales from other stores is estimated at $6,350. The additional rent
is $31,775 in this mall. The landlord is willing to give a rent-free period of 3 months and will also
pay $7,000 worth of tenant improvements in the first year.
Which of these two shopping centres would be economical for this client based on per square
foot rent of the rentable area?
A. The space in Westgate Mall would be economical as the per square foot rent for the first
year is $19.27 as compared to $20.59 in Eastgate Mall.
B. The space in Westgate Mall would be economical as the per square foot rent for the first
year is $18.75 as compared to $20.59 in Eastgate Mall.
C. The space in Eastgate Mall would be economical as the per square foot rent for the first
year is $18.75 as compared to $19.27 in Westgate Mall.
D. The space in Eastgate Mall would be economical as the per square foot rent for the first
year is $21.60 as compared to $23.48 in Westgate Mall.
Salesperson Kim of Cram Realty Inc. is looking for a suitable business for her buyer client Mr.
Sanders. This buyer is interested in purchasing a restaurant with a license under LLBO.
Downtown area of Cram city is the preferred location.
Kim has found a few advertisements in local newspapers. One advertisement has attracted her
attention. It reads as follows:
“Great opportunity to own a franchise Bar and Grill business in a busy location and high
pedestrian traffic. Asking: $229,000. Net: $112,500. Fully equipped kitchen with modern
appliances. Landlord must approve transfer of lease. Low franchise fees (just 3%) of net
income. Fully licenses use LLBO with a seating capacity of 60 persons. List of chattels
available. Big screen LCD TV and some other equipment on leased (details available). Owner
will help the buyer for one month. Don’t miss.”
The following 5 questions are based on Kim’s search for a suitable business, buyer's concerns
and her offer preparation.
46. Is there anything wrong with the net income given in the advertisement?
A. No, the seller is very honestly disclosing the net income of the business.
B. Yes, the buyer would need more clarification whether the net amount is gross or net.
C. No, income seems to be reasonable since the asking price is double the income.
D. Yes, the buyer should demand a declaration from seller regarding net income.
47. Is there any problem with the words like ‘fully equipped kitchen’, leased equipment, etc.?
A. No, most restaurant businesses do not own equipment and leasing is a standard
practice.
B. Yes, most restaurant owners do not care about leased equipment and there should be a
condition that they are in good working order.
C. No, the leasing company has the responsibility to transfer the lease to the buyer.
MiniCram Notes 81
D. Yes, the buyer must ask for copies of equipment lease contracts to know more about his
lease obligations.
48. The seller has provided the following information about the following details about his gross
profit for the last 5 years:
2011: $39,300; 2012: $35,550; 2013: 32,400; 2014: 27,280; 2015: 25,250
Salesperson Kim is trying to estimate the value of the business to check if the seller’s asking
price is very high. She decides to use a weighted average of gross profits for the past 5 years
with a capitalization rate of 0.20. The weightage given to profits is 5 for the most recent year
2015 and decreases by 1 for previous years. Which of the following is a correct estimate of
value?
A. $198,600
B. $147,655
C. $210,900
D. $252,700
49. Salesperson Kim is convinced that the seller’s asking price is reasonable. She drafts an
Agreement of Purchase and Sale (Business in a Leased Premises) on the standard form. The
offer price is $210,000 with a deposit of $12,000, payable Upon Acceptance. The offer is signed
by the buyer on August 20th and is irrevocable until August 22nd. The completion date is set for
October 30th. The first pages of the agreement have been drafted without any mistakes. She
has inserted the following financing clause in Schedule A of the offer:
"This offer is conditional upon the buyer, arranging at buyer’s own expense, a satisfactory
business loan. Unless the buyer gives notice, in writing, delivered to the seller, within 10 days of
acceptance of this offer that this condition is fulfilled, this offer shall be null and void and the
deposit shall be returned to the buyer in full without deduction."
Which of the following statements correctly describe problems with the drafting of the above
condition?
1. The condition must be written in subsequent format to ensure its fulfillment.
2. The amount of the loan and the name of the lender are missing from the condition.
3. There is no waiver provision in the condition.
4. The word ‘satisfactory’ is not permitted in financing condition.
5. The actual date of fulfillment of condition must be included.

B. Only statement 3 is correct.
50. Salesperson Kim also includes the following clause to ensure that the buyer has received
copies of lease and financial statements of the business from the seller:
"The Buyer acknowledges having received from the seller and having reviewed a copy of the
current lease for the property, and a profit and loss statement for the business for the past 12-
MiniCram Notes 82
month period. The buyer agrees that the leased equipment, as listed in Schedule B attached
herewith, is not included in the purchase price and agrees to assume the lease of all such
equipment."
Which of the following are possible problems with the way this clause has been drafted?
1. The clause should be written as a condition and not as an acknowledgement.
2. The wording of the clause is vague as it does not specify the past 12-month period.
3. There must be a provision that the seller provides the financial statements as a statutory
declaration.
4. The clause does not include a provision to provide a statement of assets and liabilities of
the business to the buyer.
5. The clause must not mention the receipt and review of a copy of the lease.

D. Only statements 3 and 5 are correct.
---------------------
Back to Sample Exam 1 Detailed Answers
MiniCram Notes 83
QUICK ANSWER KEY
SAMPLE EXAM 1
1. A 2. C 3. D 4. D 5. B
6. B 7. C 8. B 9. C 10. B
11. B 12. C 13. C 14. B 15. D
16. D 17. A 18. C 19. A 20. C
21. B 22. D 23. C 24. C 25. A
26. B 27. D 28. A 29. A 30. C
31. D 32. C 33. C 34. B 35. D
36. B 37. D 38. C 39. D 40. B
41. B 42. B 43. C 44. B 45. A
46. B 47. D 48. B 49. B 50. B
---------------------
MiniCram Notes 84
SAMPLE EXAM 2

1. Which of the following statements is correct regarding lifestyle centres?

A. It is an upscale business centre and is very similar to an enclosed shopping centre.
B. Lifestyle centres include entertainment facilities but do not have any business offices.
C. They include open-air tree-lined streets, on-street parking, boutique merchandisers,
entertainment facilities and pedestrian friendly streetscapes.
D. They are much larger than regional shopping centres and involve huge initial investment
for the developer
2. Which of the following statements is not correct regarding commercial building classifications?
A. Class C buildings are at less desirable locations; are always more than 30 years old and
they need renovation before being leased.
B. Class B Buildings are identified by their fairly good location; they are older structures
than Class A buildings but are well managed and maintained.
C. Class A buildings are found in downtown core area; have prestige location and they
typically attract corporate leaders, international corporations and banks.
D. Some market analysts may further classify Class A buildings in to AA or AAA subclasses,
but no standard criteria exist.
3. Which of the following statements is not correct with respect to industrial real estate?
A. Industrial investors are typically interested to attract a long-term tenant which provides
security of return on investment.
B. Large industrial users concentrate on site requirements and may ignore characteristics
of the community.
C. A single purpose industrial building is specifically built with only one purpose and may
not permit conversion of use.
D. The availability of present and future industrial sites may be impacted by factors such as
availability of capital, extension of existing services to subject site and access.
4. Which of the following statements is not correct about the concept of building core in a multi-
storey office building?
A. Centre-core designs are better suited for larger tenant-occupied buildings while the side-
core design is better suited for multiple tenancies.
B. Building core refers to the location of central component of the building which includes
functional and service needs of the occupants.
C. Centre-core designs attract tenants who prefer perimeter windows for executives and
other areas for middle management.
D. Side-core designs attract tenants whose staff mostly has similar functions and they do
not need executive offices.
MiniCram Notes 85
5. Which of the following statements is correct with regard to construction of industrial buildings?
A. Concrete or poured concrete construction is preferred for small and medium-sized
buildings because pre-engineered steel buildings are very expensive.
B. Most industrial buildings are primarily built as general-purpose buildings and specific
structural changes are easy to incorporate heavy industrial requirements.
C. Steel construction is commonly used because it provides strength as well as flexibility to
the structure during high winds.
D. Industrial building designs rarely consider requirements for bay depth, clear height or
clear space because most tenants look at aesthetics of the building.
6. A land development agreement is required by municipality when:

A. The owner applies for continuation of non-conforming use.
B. An application is made for rezoning of a property for development.
C. A developer wants to make an offer on vacant industrial land.
D. A commercial building owner wants extension of non-conforming use.
7. Which of the following statements is not correct with respect to ownership of commercial
properties?
A. Partnerships are created under common law and there is no legal distinction between
the business operation and its partners.
B. All individuals in joint venture have undivided interest in the project and are issued equal
number of shares irrespective of their investment.
C. A corporation is treated as a distinct entity from its shareholders, unless personal
covenant is attached.
D. A Real Estate Investment Trust (REIT) may only be involved in financing of real estate
projects.
8. In a lease for retail unit in a shopping centre, what is the preferred method to specify tenant's
unit location, size and boundaries?
A. Provide the specific municipal address of the unit along with address of the shopping
centre.
B. Attach a copy of the approved plan of subdivision to the lease.
C. Attach a site plan of the shopping centre to the lease.
D. Include a survey of the site and improvements with the lease.
9. Why is the difference between rentable area and usable area so important in a retail
shopping centre?
A. So that the tenants pay additional rent for parking spaces allocated to them
B. Because rent calculation is typically based on rentable area of the unit.
C. Because the tenant must know that his rent is based on the area within his specific unit.
D. Because the tenant must know he does not have to pay for common areas.
10. Which of the following statements is not correct with respect to sub-lease of a commercial
retail unit?
A. The terms of the head lease between the landlord and the tenant may affect the sub-
tenant.
B. The sub-tenant is typically provided specific time period to approve the head lease.
MiniCram Notes 86
C. The Commercial Tenancies Act mandates approval of all sub-tenants by the landlord.
D. If the landlord does not approve the sub-tenant, the sub-lease agreement becomes null
and void.
11. Which of the following statements is correct with respect to commercial tenancies?
A. If a commercial tenant files for bankruptcy the indemnifier may still be held liable.
B. The Commercial Tenancies Act requires the landlords to pay interest on security
deposits.
C. Commercial lease agreements rarely have a continuous use clause because it is harmful
to the landlord.
D. The Commercial Tenancies Act does not permit landlords to collect tax payments in
advance.
12. A commercial property owner has received a tax assessment notice for the current year. If
the owner seeks reconsideration of his assessment value:
A. He must file an appeal to Ontario Municipal Board.
B. He must file an appeal to the Assessment Review Board.
C. He may file a Request for Reconsideration or can directly appeal to the Assessment
Review Board.
D. He must file an appeal to the local Committee of Adjustment.
13. Due diligence by the buyer for a particular real estate transaction:
A. Is applicable to vacant industrial development land but does not apply to buildings.
B. Involves investigation of only financial and legal matters, considering future liability for
the buyer.
C. Focuses mainly on investigation of financial, legal, structural and environmental factors
related to the property.
D. Does not include any environmental audits because Environmental Insurance protects
the buyer for all future liabilities.
14. When an amendment application is submitted for a change in zoning by-law:

A. The amendment approval always includes conditions which must be fulfilled within six
months.
B. A hydrogeological report is typically required as part of the application when a community
or private septic system is needed.
C. Provided that the advance consultations with municipal planning department have been
done, many requirements under the Planning Act are waived.
D. Once the amendment is approved, no other public agency can raise any objection to the
developer’s plan.
15. Salesperson Jacob of Cram Realty Inc. is drafting an offer for a multi-residential rental
apartment building. This is the first time she is working on a commercial property. Which of the
following statements correctly describe the similarities and differences between agreements
forms used for single family residential resale and multi-residential resale?
A. There are not many differences and the form for single family residential resale can also
be used for multi-residential resale.
MiniCram Notes 87
B. Since tenants usually own the appliances in all multi-residential buildings, the
salesperson need not list them separately in the agreement.
C. Since both properties are essentially used as residential, a standard home inspection
condition would be adequate for the multi-residential building.
D. The multi-residential agreement is more likely to include confidential financial information
of the seller than in a single family residential resale.
16. The buyer of a small eight-unit rental apartment building is demanding copies of all lease
agreements and many other financial statements from the seller. The seller has some concerns
and does not want to provide any documents unless there is a binding agreement. How should
the salespersons take care of best interests of the buyer as well as the seller?
A. The buyer should be asked to provide a statutory declaration that he will not disclose
seller’s financial information.
B. A confidentiality clause may be included in the offer as a condition so that the buyer does
not disclose seller’s information to third parties.
C. The seller may be given verbal assurance by the co-operating brokerage that his
information will be kept in strict confidence.
D. The buyer may be provided a written assurance by the listing brokerage that once there
is a binding agreement, all financial statements would be provided.
17. Salesperson Kim is working with a buyer client who is interested to know about
sale/leaseback arrangements. In response to his questions, Kim provides the following
information:
1. It is beneficial to both the buyer and the seller because the buyer gets a long-term tenant
and the seller can free up his equity while retaining the same location.
2. Sale/leaseback arrangements are popular in slow market when the seller is under an
impression that the sale would not be a viable option and it is better to lease.
3. It is used when the seller wants to become a tenant in his own property and sells it to an
investor who is looking for good investment and a reliable tenant.
4. It is used when a brokerage is hired to sell the building to an investor who then hires the
same brokerage to find a long-term tenant.
5. Sale/leaseback occurs when the current owner sells the building to the existing tenant
because there was a 'Tenant's First Right of Refusal' clause in the lease.
Which of the above statements is/are correct?

18. Cash flow from an investment property may be derived in many ways. Which of the following
is a correct statement in this regard?
A. Operations Cash Flow refers to cash flow received from reversion or sale of the property.
B. Both Operations Cash Flow and Sale Proceeds Cash Flow are analyzed in order to take
an investment decision.
MiniCram Notes 88
C. After tax cash flow is not important for analysis because of uncertainties involved in tax
regulations.
D. Investors rarely focus on leverage analysis when deciding about investment in
commercial properties.
19. Which of the following statements is/are correct regarding Design/Build arrangements in
commercial retail and industrial real estate?
1. Developers do not take much interest in Design/Build options because it tends to reduce
their return on investment.
2. The land owner agrees to build a structure in accordance with the requirements and
specifications provided by a specific long-term tenant.
3. Since speculation is involved in these arrangements, developers rarely get involved unless
a sale/leaseback agreement is also signed.
4. Commercial tenants always prefer Design/Build because they need not analyze of lease vs.
ownership options.
5. Developers take interest in Design/Build activities when demand for lease space is high and
availability of existing industrial space is limited.
A. Only Statements 2 and 5 are correct.

20. Which of the following statements is correct regarding municipal property tax reduction for
farm business operations in Ontario?
1. If the farming operation qualifies, the tax may be reduced up to 75%.
2. All farming operations qualify for at least 50% tax reduction provided they adhere to the
Farming and Food Production Protection Act.
3. The farmer must have a valid farm business registration number in order to qualify for tax
reduction.
4. The buyer must carry on the farming business and generate certain level of gross income
and apply annually for tax reduction.
5. The farm business must be 100% owned by a Canadian citizen or a permanent resident.

21. Which of the following statements is correct about sale/leaseback of industrial properties?
1. Sale/leaseback is beneficial to both the buyer and the seller because the buyer gets a long-
term tenant and the seller can free up his equity for investment in other projects.
MiniCram Notes 89
2. In a sale/leaseback agreement, the seller always includes an ‘Option to Purchase’ clause

so that he can buy back the building after the lease expires.
3. Sale/leaseback agreement is typically a result of a clause known as ‘Tenant’s First Right
of Refusal’.
4. The seller typically sells the property to an investor and becomes a long-term tenant of the
property in order to retain the location for his business.
5. Sale/leaseback agreements are popular when the building is in poor condition and the
seller would not find a suitable buyer.

B. Only statements 2, 3, and 4 are correct.
C. Only statements 1, 3, and 4 are correct.
22. Which of the following statements is correct regarding advantages of investment in

commercial real estate?
A. Commercial properties always have lower taxes than residential properties.
B. Lower initial investment is required as compared to a residential property.
C. There is an opportunity for growth of invested capital through refinancing.
D. Commercial investment properties provide fast liquidation of investment.
23. Salesperson Sarah of Cram Realty Inc. is working with a buyer client interested in
purchasing a business. The buyer is curious to know more about franchise businesses.
Salesperson Sarah provides the following information in response to buyer's questions:
1. The costs and on-going franchise fees are not significant.
2. The franchisor usually provides training which includes business techniques, marketing and
financial record keeping.
3. If the value of the franchise increases over the years, the value of the business may also
increase.
4. The cost of buying products would be less expensive because the franchisor has the group
purchasing power.
5. You may later sell the business anytime without the consent of the franchisor.
The information provided by the salesperson is not entirely correct. Which of the above
statements are correct?
24. The Commercial Tenancies Act provides many rights to the landlords which are typically not
found in the Residential Tenancies Act. Which of the following is not a correct statement in this
regard?
MiniCram Notes 90
A. Upon default of rent payment, the landlord may change the locks 15 days after rent
became due.
B. The tenant may withhold rent payments if the landlord fails to fulfill obligations under the
lease contract.
C. In certain cases, the landlord may seize and dispose of tenant’s property for non-
payment of rent.
D. Both the landlord and the tenant may approach the Superior Court of Justice in case of
a dispute.
25. The Commercial Tenancies Act has certain provisions regarding termination of a
commercial lease. Accordingly, which of the following statements is correct?
A. The landlord may terminate the lease anytime by giving a 30 days’ notice to the tenant.
B. The tenant has no right to occupy the premises when the lease expires, and it is not
renewed.
C. Once the possession of the premises is given, the landlord must wait until the end of
lease to give termination notice.
D. If the tenant continues to occupy the premises after expiry of the lease, he is liable to
pay two month’s rent as additional security deposit.
26. The Agreement to Lease - Commercial form is typically used for preparing lease offers.
A. The pre-printed wording of this form states that the landlord and the tenant must execute
a formal lease before possession; otherwise the agreement becomes null and void.
B. The fundamental, material aspects of the lease in this form are included in the final lease
and the landlord is not permitted to add any more clauses in lease.
C. This form itself may constitute the final lease between the landlord and the tenant if a
formal lease is not to be drawn by the landlord.
D. This agreement does not have to be in compliance with the Commercial Tenancies Act
so long as the formal lease is in compliance.
27. The gain realized from sale of a commercial property may be treated as capital gain or as
normal business income. The Tax Court of Canada considers several factors when making a
decision in this regard. Which of the following is not one of these factors?
A. The amount of income being reported on the income tax return.
B. The frequency of similar transactions completed by the taxpayer.
C. Taxpayer’s intention before, during and after the taxation period.
D. The relationship of the transaction to taxpayer’s normal business.
28. The purpose of Ontario Brownfields Statute Law Amendment Act is:
A. To encourage clean-up and revitalization of abandoned or contaminated lands.
B. To ensure that every industrial land buyer completes a Record of Site Conditions report.
C. To ensure that buyers of abandoned or contaminated land do not have to comply with
the Environmental Protection Act.
D. To encourage the municipalities to more strictly enforce the requirements of Planning
Act for redevelopment of abandoned or contaminated lands.
29. An individual who is unable to pay off his debt may have certain options under the
Bankruptcy and Insolvency Act. Which of the following is not one of them?
MiniCram Notes 91
A. The individual may meet a Trustee in Bankruptcy and make an attempt to avoid
bankruptcy.
B. A Trustee in Bankruptcy may file a proposal to creditors for settlement of debt.
C. If the debtor files for bankruptcy for the first time, he may be discharged after 9 months,
subject to certain qualifications.
D. An alternative to bankruptcy for an individual is to file for receivership and in that case,
the receiver makes an attempt to settle the debt.
30. Jacky is looking for a real estate brokerage after completing her educational requirements
for obtaining a real estate salesperson license. She understands that when employed by a
brokerage, she could work as an employee or as independent contractor. Which of the following
statements is not correct regarding the difference between independent contractor and an
employee?
A. As an independent contractor, the brokerage could require that all advertising be
approved in advance.
B. As an independent contractor, the brokerage may require her to obtain and maintain HST
registration.
C. As an employee, she can always alter commission terms without authorization from the
brokerage.
D. As an employee, her employment can be terminated without notice, subject to the
provisions of the Employment Standards Act of Ontario.
31. The National Do Not Call List provisions for making calls apply to real estate brokerages but
there are certain exceptions. Which of the following is not one of them?
A. When a party specifically requests a registrant to contact him.
B. When a party has made an enquiry about a property listed by the brokerage.
C. When a party had a listing agreement with the brokerage that expired two years ago.
D. When a party is contacted through email or other means of correspondence.
32. If the lot size is 4,800 square feet and the total floor area is 12,480 square feet, what would
be the floor area ratio?
A. 2.6
B. 3.8
C. 1.3
D. 0.38
33. Investor Bright is analyzing a Design/Build option for his client based on his return on
investment in the project. The selected parcel of land is 3.5 acres is size and is listed at
$275,000 per acre. The zoning by-laws permit a maximum coverage of 35% of the total lot size.
The different building costs are as follows: Soft cost - $14.55 per square foot; hard cost - $43.95
per square foot and; development cost - $12.75. If the tenant client is ready to pay annual rent
of $11.50 per square foot, what would be Bright’s return on investment? Assume that the Base
Rent represents the Net Operating Income of the property and all operational costs are to be
borne by the tenant by way of Additional Rent. (1 Acre = 43,560 Square Feet)
A. 8.05%
B. 9.65%
C. 12.88%
D. 14.57%
MiniCram Notes 92
34. Investor Mehra is considering purchase of an apartment building having 76 units. The
building is listed for $6,500,000 and Bright is ready to pay this price provided it meets his
investment objectives. Bright has 35% equity available and will arrange a mortgage loan for the
balance of the purchase price. The mortgage will be interest only with an annual interest rate of
6.5% per annum, with interest payment at the end of each year. The financial statements given
by the seller provide the following information:
• The annual potential rental income is $1,150,000.
• The vacancy and bad debt loss is 4.5% of annual potential income.
• Other income from parking and laundry is $29,800.
• The annual operating expenses are 58.5% of the annual operating expenses.
Based on above information, what would be the Return on Equity from this purchase?
A. 8.51%
B. 9.72%
C. 10.05%
D. 12.65%
35. A small hardware store in Cram City has provided some information on its gross profit to the
listing brokerage. The amounts were $122,500 for 2010; $126,200 for 2011; $132,000 for 2012
and $137,800 for 2013. The brokerage applies a weighting to these profits as follows:
Year 1 – 4; Year 2 – 3; Year 3 – 2 and Year 4 – 1.
If the year 1 is considered the most recent year for calculations, what would be the weighted
average of gross profits for these four years?
A. $132,210
B. $143,278
C. $126,560
D. $129,625
36. The annual base minimum rent for a retail unit is $16.50 per square foot. The percentage
rent clause specifies 5.5% of gross annual sale over the base minimum. A tenant leases a unit
in this shopping centre with rentable area of 2,650 square feet. The gross annual sale for the
first year is expected to be $640,000. What would be the base sale and the total of base
minimum and percentage rent per square foot respectively?
A. $640,000; $16.50
B. $795,000; $16.50
C. $795,000; $21.58
D. $352,200; $23.95
37. The Cram City Centre shopping mall has 240,000 square feet of total rentable space, leased
to various tenants. Cram Cookies Inc. has a store in this mall with 2,300 square feet of rentable
area. There is also a beer store in the mall which is occupying 4,500 square feet of rentable
space. The Beer Store has tax-exempt status and does not pay property tax to the landlord.
With this situation in mind, the landlord had changed the method for property tax calculation for
other tenants. If the total property tax for the shopping centre for the current year is $276,000,
what would be the proportionate share of taxes for Cram Cookies Inc.?
MiniCram Notes 93
A. $1,322.35
B. $2,460.50
C. $2,695.54
D. $2,980.73
38. The rentable area leased by a retail tenant is 1,800 square feet with a base minimum rent of
$12.50 per square foot per annum. The percentage rent is $6,750. The landlord is willing to give
$12,000 concession for tenant improvements in the leased unit and is also offering 3 month rent
free period for base minimum rent only. The additional rent payable by the tenant is $15.50 per
square foot annually. Based on this information, what would be the rent for the first year per
square foot of rentable area?
A. $21.96
B. $31.75
C. $25.08
D. $34.92
39. A commercial property was purchased in September 2012 for $1,640,000. The improvement
allocation at the time of purchase was $980,000. The CCA rate for the building and
improvements is 4%. What would be the Undepreciated Capital Cost at the end of 2 years of
ownership?
A. $960,400
B. $903,168
C. $921,984
D. $1,511,424
40. Investor Ingrid purchases a commercial building five years ago for $2,440,000 with
improvement allocation of 65%. The CCA rate for this type of building was 4%. During all these
years a total of $265,877 has been claimed as CCA. She did not make any major capital
improvements during the years of ownership. Ingrid sells the property now for 2,980,000 with
improvement allocation of 60%.
What would be the Recapture of CCA on this sale of the property?

A. $265,877
B. $270,000
C. $148,938
D. $97,600
This case study is based on your interpretation of clauses commonly found in commercial lease
agreements. Your tenant client wants you to explain him the certain clauses.
41. The landlord has included the following clause in his formal lease agreement under the
heading ‘OVERHOLDING’:
"If the tenant continues to occupy the premises after the expiration of the term, without any
further written agreement, Tenant shall be a monthly tenant at a monthly Minimum Rental equal
to one-sixth of the highest annual combined Minimum Rental and Percentage Rental that were
payable by tenant during any Rental Year of the term and otherwise on the terms and
MiniCram Notes 94
conditions herein set out with such changes as are appropriate to a monthly tenancy. This
provision is not to affect tenant's obligation to deliver up vacant possession at the expiration of
the term."
Which of the following statements is correct with respect to the wording of the above said
clause?
A. The purpose of this clause is to convert the tenancy into a month-to-month tenancy after
the expiry with new rent obligations.
B. The purpose of this clause is to provide the terms for the renewal of the lease.
C. The calculation of rent after expiry of the term will be based on the combined minimum
rent and percentage rent paid during the final year of the lease.
D. The clause releases the tenant from delivering vacant possession of the unit after expiry.
42. Another clause is included in the lease under the heading ‘NO ENCUMBERANCES’:
"Tenant shall not sell, transfer, assign, pledge, mortgage or in any way encumber any or all of
its fixtures or equipment used in the operation of its business on the premises without the prior
written approval of Landlord, but this shall not prevent Tenant, to the extent usual and
reasonable in the conduct of business, from leasing or creating conditional sales contracts or
mortgages to secure part of the purchase price of Tenant's removable trade fixtures or
furnishings or creating security upon its stock-in-trade, provided that the foregoing shall in no
way prejudice or affect the priority of Landlord's rights or the obligations of Tenant with respect
to such fixtures or furnishings of stock-in-trade under all other terms of this lease and with
respect to the Personal Property Security Act and all laws relating to bankruptcy. Tenant shall
not mortgage or otherwise encumber its interest in this lease or sublease thereof."
How would you explain the wording of this clause to your client?
A. The landlord is agreeing to allow the tenant to pledge the value of the lease as security
for any future financing that may be required by the tenant.
B. In the event of default on rent payments by the tenant, the landlord wants to make sure
that any fixtures or equipment seized by the landlord are not subject to a prior claim.
C. Under the wording of this clause, the tenant must obtain the written approval of the
landlord to purchase any fixtures or equipment.
D. This clause effectively transfers ownership of all fixtures and equipment on the premises
to the landlord.
Broker/Owner Binny of Cram Realty Inc. is providing training to his salespeople. The topic being
discussed is sale of business. After a brief explanation of different complexities involved and
regulatory requirements, he wants to see if his salespeople understand. Answer the following
three questions.
43. Binny asks the first salesperson if he understands how businesses are evaluated. Also,
what different options are available to the buyer for financing the purchase?
Select the correct statement out of the following options.
MiniCram Notes 95
A. Since businesses have a steady income stream, it is easier for the buyer to get financing
as compared to residential property.
B. A high capitalization rate results in a high value for the business.
C. If asset valuation is used, the assets might include the value of goodwill and a lower than
market rent for the premises.
D. The Earnout method of financing is preferred by seller of a business because the final
purchase price is established before the buyer takes possession and seller is assured of
regular payments after closing.
44. A second salesperson was asked to explain the requirements of REBBA 2002 for selling a
business. The salesperson gave the following answer:
"The Act requires the buyer to receive a profit and loss statement for the preceding 12 months, a
statement of assets and liabilities and a list of items included in the transaction. If the buyer does
not receive the financial statements, the seller must provide the buyer with a statement under
oath which must include all liabilities of the business and the details of any subletting, and the
buyer can waive receipt of the financial statements."
How would you judge the given answer?

A. Excellent. The salesperson gave a full and complete answer to the question.
B. Good. The salesperson’s answer was a little brief and should have included the fact that
the buyer's waiver must be in writing.
C. Unacceptable. The salesperson is completely confused with respect to the requirements
of financial statements.
D. Unacceptable. The answer should have stated the requirement for a statement of
fixtures, goods, chattels, assets and rights relating to and connected with the business
that are not included in the transaction.
45. Binny then states it would be a good idea to review other related documentation which
should be demanded from the seller in order to protect the buyer’s interests. In response to
Binny’s question, a third salesperson provides the following statements:
“The requirements of the REBBA 2002 are only minimum requirements. If possible, the buyer
should be provided with at least 3 years financial statements of the business. If the business is a
franchise business, then the buyer must study the franchise agreement thoroughly before
entering into a binding agreement. This is because the franchisor may have reserved the right to
make the sale void if the franchise fee is not paid again by the buyer. The franchise fee paid to a
franchisor depends on its market penetration.”
The salesperson has made an error with respect to documentation. Which of the following
statements best describes this error?
A. The one-time franchise fee is already paid by the seller and the franchisor cannot make
the sale void if the buyer does not pay it again.
B. The salesperson incorrectly stated that REBBA 2002 requirements are minimum.
C. The buyer should get at least 5 years financial statements from the seller.
D. If the business is a franchise business, the buyer need not worry about franchise
documentation because it is normally in favour of the business owner.
MiniCram Notes 96
Salesperson Jacob of Cram Realty Inc. is drafting an offer for his buyer named Bright. The
subject property is a retail unit number 5 in a corner plaza at 350 Cram Square. The unit is listed
by salesperson Kim of his own brokerage for $384,900. Bright is ready to make an offer for
$370,000 and wants the seller to finance $120,000 out of the purchase price. The listing
salesperson Kim informs Jacob that the seller also wants the buyer to assume an existing
mortgage in the amount of $150,000 in order save on penalty for early discharge. While the
buyer agrees to assume the seller’s existing mortgage, the seller also agrees to a seller take
back mortgage to help the buyer. The buyer makes it clear to Jacob that he does not want to be
responsible for HST on this purchase.
Salesperson Jacob prepares the offer using standard Agreement of Purchase and Sale –
Commercial with all the terms. The buyer signs the offer on August 1, 2014 at 9.30 am.
• The offer date is August 1, 2014 with an Irrevocable date of August 3, 2014 at 10.00 pm.
• The Deposit amount is $25,000 to be submitted Upon Acceptance.
• The date set for fulfillment of conditions is set for August 12, 2014.
• The Requisition Date is September 5, 2014.
• The Completion Date is set for September 30, 2014.
The agreement contains the standard Building Inspection condition, a Mortgage Assumption
clause and a Seller Take Back clause in the Schedule A as shown below:
“The buyer agrees to assume seller’s existing first charge/mortgage held by Cram Financials
Inc. for approximately one hundred and fifty thousand dollars ($150,000.00) bearing yearly
interest rate of 5.5%, calculated semi-annually, not in advance, repayable in blended monthly
payments of nine hundred fifteen dollars and fifty-nine cents ($915.59), including both principal
and interest, and due on December 20, 2016. Unless the buyer gives notice in writing delivered
to the seller not later than 6.00pm on August 12, 2014 that this condition is fulfilled, this offer
shall be null and void and the deposit shall be returned to the buyer in full without deduction.
The buyer agrees to proceed diligently to make an application to the lender and provide such
documentation as required by the chargee/mortgagee for approval of the buyer as
charger/mortgagor.”
“The seller agrees to take back a second charge/mortgage in the amount of fifty thousand
dollars ($120,000.00) bearing interest at the rate of 8% per annum, calculated semi-annually
not in advance, repayable in blended monthly payments of about nine hundred fifteen dollars
and eighty-six cents ($915.86) based on a 25-year amortization and to run for a term of five
years from the date of completion of this transaction.”
46. How would salesperson Jacob complete the HST section of the agreement in order to
comply with her buyer client’s instructions?
A. The clause can be left blank until the seller’s solicitor provides an undertaking that the
sale is not subject to HST.
B. The words ‘In Addition To’ are pre-printed in the Agreement of Purchase and Sale –
Commercial because commercial sales are subject to HST.
C. The words ‘Included In’ should be inserted in the clause to protect the interests of the
buyer so that if HST becomes applicable it is seller’s responsibility.
MiniCram Notes 97
D. The words ‘In Addition to’ should be inserted in the HST clause because the
salesperson knows that all sales of retail units are exempted from HST.
47. Salesperson Jacob has deliberately left the Notices clause blank in the agreement. Which of
the following statements correctly describes why this was done?
A. The fax numbers of the listing and selling brokerages cannot be filled up because both
the seller and the buyer are clients of the same brokerage, resulting in multiple
representation.
B. Since the buyer has signed a Buyer Representation Agreement after the Listing
Agreement was signed, the brokerage is not permitted to send notices by electronic
means such as fax or email.
C. It is definitely a critical mistake because the space in the Notices clause is considered
essential information and missing numbers or email addresses could lead to
termination of the agreement.
D. Salesperson Jacob is treating the buyers as customers even though they have signed
Buyer Representation Agreement, and hence, he left the Notices clause blank.
48. Based on the mortgage clauses given in Schedule A of the agreement, do you have any
concerns with the way the Mortgage Assumption clause has been drafted?
A. Yes, the mortgage assumption clause does not specify the amortization period which
makes it difficult to verify the payment amount.
B. Yes, the mortgage assumption clause does not include the condition for approval of
buyer as chargor/mortgagor.
C. Yes, the words ‘per annum’ are missing in the given clause to specify that the interest
rate is annual.
D. Yes, the clause should include a waiver provision so that the buyer can waive the
condition in order to make the agreement a legally binding contract.
49. Based on the mortgage clauses given in Schedule A of the agreement, do you have any
concerns with the way the Seller Take Back mortgage clause has been drafted?
A. Yes, the clause should be a conditional clause as is the case with mortgage
assumption clause.
B. Yes, it is actually the buyer who is taking back the second mortgage and not the seller.
C. Yes, the seller take back mortgage cannot have more than 20 year amortization.
D. Yes, the seller take back mortgage should have a postponement provision because the
first mortgage is expiring before the second mortgage.
50. What should be the correct amount of balance due on completion?

A. $65,000
B. $75,000
C. $305,000
D. $365,000
---------------------
MiniCram Notes 98
QUICK ANSWER KEY
SAMPLE EXAM 2
1. C 2. A 3. B 4. A 5. C
6. B 7. B 8. C 9. B 10. C
11. A 12. C 13. C 14. B 15. D
16. B 17. B 18. B 19. A 20. D
21. D 22. C 23. D 24. B 25. B
26. C 27. A 28. A 29. D 30. C
31. C 32. A 33. C 34. A 35. A
36. B 37. C 38. A 39. C 40. A
41. A 42. B 43. C 44. D 45. A
46. B 47. A 48. B 49. D 50. B
---------------------
MiniCram Notes 99
SAMPLE EXAM 3

1. From a retail demand perspective, a mix of retail tenants satisfying different consumer needs
that results in consolidating different shopping trips, is known as:
A. Range.
B. Threshold
C. Clustering
D. Competition
2. One of the characteristics of a Class C office building is that:

A. It is at an average location, built with average materials and quality of construction.
B. It is located in a high tech and modern business centre.
C. It is located in a less desirable area and needs extensive renovation but is available at
comparatively low rent.
D. It is located in prestige areas where rents are comparatively higher.
3. From commercial retail demand perspective, the maximum distance a consumer will travel to
acquire is specific product or service is referred to as:
A. Lifestyle
B. Range
C. Threshold
D. Population Base
4. Which of the following statements is incorrect regarding categories of industrial buildings?
A. Developers typically prefer multi-use industrial buildings to attract different types of

tenants.
B. General-purpose industrial buildings are very common because they offer features and
facilities for a variety of alternate uses.
C. Special purpose industrial buildings offer loading docks and may have cross-docking
facilities for a tenant who has specific loading requirements.
D. A single purpose building is the most popular of all industrial building types because
landlord gets a single tenant with a long-term lease.
5. From the perspective of an investor of real estate:
A. The decorative features of a specific commercial property are extremely important.

B. The building must fulfill the needs for the staff and business equipment.
C. The property must have prominent visibility in the neighbourhood.
D. The return on invested capital must fulfill the overall investment objectives.
MiniCram Notes 100

6. Which of the following statements is correct regarding valuation of a business?

A. When the gross profits vary over a period of time, a simple average of profits is the only
method to arrive at an estimate of value.
B. For a business in leased premises, the discounted cash flow method is best suited for
evaluation.
C. When the business has marginal earning potential but notable retained earnings, the
adjusted book value method is typically utilized.
D. The direct method of capitalization is suitable only for rental apartment buildings and is
not used for evaluation of businesses.
7. Which of the following statements is correct regarding lease agreements related to farm land?
A. The crop share lease authorizes the land owner to get 50% of the crop produce.
B. In cash rent lease, the tenant pays the rent only if the crop yield provides adequate
returns.
C. In flexible cash lease, the landlord gets a fixed rent but also gets some dollar amount
based on crop yield.
D. In all types of farm land leases, the landlord typically supplies farmland, retains
ownership and is responsible for property taxes.
8. Which of the following statements is correct with respect to commercial lease agreements?
A. The Statutes of Frauds does not apply to any commercial lease which is less than 3
years.
B. The formal lease prepared by landlord’s solicitor is known as a settled form of lease.
C. If a lease contains percentage rent clause, the percentage for different tenants must be
the equal.
D. Landlords typically calculate percentage rent based on gross sales estimates provided
by the tenants.
9. Which of the following statement describes best procedures for landlords when preparing
commercial lease?
A. The landlord should keep a provision that assignment or subletting of premises is never
permitted.
B. The lease should permit the tenant to assign or sublet the premises but with prior
written consent of the landlord.
C. The landlord should make sure that when a request for assignment or sublet is made,
the lease is automatically terminated.
D. The landlord should ensure that the tenant is provided with the right to receive rents
more than what he pays to the landlord.
10. Phase 1 of the Environmental Audit:
A. Determines the scope of contamination and recommends remedial action.

B. Is always required for every real estate transaction if the buyer needs a mortgage loan.
C. Is exempted under the Environmental Protection Act if the owners obtain Environmental
Insurance.
D. Determines if reasons exist to believe that the property has some form of contamination.
MiniCram Notes 101

11. Which of the following is a correct statement with respect to capital cost allowance (CCA)?
A. If a capital asset is purchased during a taxation year, the taxpayer may claim 50% of its
cost as CCA.
B. The half year rule or 50% rule for the year of purchase applies to most capital assets
including real estate.
C. A fixed allocation of 50/50 for land and building is used when a commercial property is
sold.
D. The taxpayer may choose to use the straight-line method to avoid complex CCA
calculations.
12. Which of the following statements correctly describe an easement?

A. A right given by one fee simple land owner to another land owner for the purchase of
crops, trees or other farm produce.
B. The right given by a fee simple land owner to another land owner for a specific purpose
rather than general use.
C. An encumbrance on the title of a fee simple owner which need not be documented in
land registry office or in the Agreement of Purchase and Sale.
D. It is a deed restriction contained in the deed of a fee simple property to prevent the
property from being used for a specific purpose.
13. Which of the following statements is correct with respect to industrial buildings?
A. Pre-engineered industrial structures are not popular anymore due to the additional time
and cost required for assembly.
B. Live load refers to the ability of the floor to support the weight of structural components.
C. Clear span in an industrial building refers to the floor area which is free of interference
from support walls or columns.
D. Industrial buildings used for warehousing purposes are typically divided into small
segments to facilitate storage of goods.
14. Buyers of commercial properties who would use it as a distribution centre would have
specific requirements. As such, which of the following would be the focus of attention for these
buyers?
A. State of the art technology, modern communication systems and treatment facilities for
water contamination.
B. Population density in the area as well as proximity to affluent neighbourhoods and
opportunities for leasebacks.
C. Proximity to transportation corridors, time/distance factors, freight rates to major
customer locations.
D. Availability and cost of skilled labour, distance to raw materials and availability of power
to support the commercial operation.
15. Multi-residential apartment buildings are a major segment of commercial real estate. Which
of the following statements is correct in this regard?
A. The Commercial Tenancies Act applies to buildings with 5 or more units. If the apartment
building has 5 units or less, the Residential Tenancies Act applies.
B. It is the responsibility of the buyer of an apartment building to send notices to tenants if
the rent increase dates fall between the acceptance of offer and closing date.
MiniCram Notes 102

C. Residential apartment buildings are not considered business under Real Estate and
Business Brokers Act 2002.
D. In addition to other financial statements, the Agreement of Purchase and Sale for a rental
apartment building would typically include the summary of all tenant leases.
16. Sale of a multi-residential apartment building may be impacted by many factors. Which of
the following is not one of them?
A. The landlord’s rights under the Commercial Tenancies Act.

B. The rent control provisions under the Residential Tenancies Act.
C. The operational, financial and legal matters involved with the property.
D. The current lease agreements with existing tenants and contracts with service or utility
companies.
17. When it comes to decision making for investment in commercial properties, risk assessment
and analysis is a major factor. Which of the following is a correct statement with respect to risk
to an investor when making an investment decision?
A. Stability of interest rates and purchasing power of dollar are some examples of risk
factors.
B. Assessment of risk involves systematic analysis of yield realized on an investment.
C. The investor can reduce his risk by including rent increase clauses in tenant leases and
limiting his personal obligation when borrowing.
D. When the risk is higher, chances are that the rate of return to the investor will also
increase.
18. Which of the following statements is correct when a buyer is considering purchase of a
business in leased premises?
A. Because a business operation provides a consistent income stream, it is easier to finance
than a residential property.
B. The terms of the lease and its remaining period along with renewal privileges are some
of the key factors for buyers.
C. If the seller is financing the purchase of the business, the Earnout method would be the
best option because the sale price is established in the agreement.
D. REBBA 2002 requirements are applicable when selling a business, whether it is a private
sale, or a real estate brokerage is involved.
19. The topic of assignment or subletting in a commercial lease is included in the Common Law
of Contract.
Accordingly, which of the following statements is correct?
A. Commercial landlords ensure that the lease contains a provision for prior consent of the
landlord for assignment and subletting.
B. Assignment is generally preferred by landlords over subletting because both the original
tenant as well as the assignee remains liable to the landlord.
C. The Contract Law does not permit the landlord to prevent the tenant from assignment or
subletting.
D. The landlord may include a consent requirement for subletting, but the Contract Law
does not permit this for assignment.
MiniCram Notes 103

20. The definition of the term 'Gross Sales' may be specific for a particular tenant and, as such,
a commercial lease typically has a section where Gross Sales is defined. The reason why
landlord wants to know a tenant's Gross Sales is that:
A. It is required to calculate the base minimum rent.
B. The gross rent for the unit is based on gross sales.
C. It is required to calculate the additional rent.
D. The percentage rent is based on gross sales.
21. Rent free period are common in commercial leases and may prove to be a desirable
incentive for a tenant. Which of the following is a correct statement in this regard?
A. Rent free period are typically given by landlords when there is a strong demand for
commercial space.
B. Rent free period typically means that the tenant will not pay any base rent but may still
have to pay the additional rent.
C. Rent free period is given at the end of the lease with a condition that the tenant has not
defaulted anytime during the entire lease.
D. The Commercial Tenancies Act requires all commercial landlords to give three months’
rent-free period to first time tenants.
22. Commercial buildings for lease may have both rentable and usable areas. Which of the
following is a correct statement in this regard?
A. Usable area comprises of actual area of tenant's unit plus the tenant's proportionate
share of common expenses.
B. Rentable area refers to actual usable area of tenant's unit plus the tenant's proportionate
share of common elements.
C. Usable area includes all areas in the building that the tenant and its clients would be
using.
D. Rentable area for a tenant is synonymous with gross floor area of all units
23. The Ontario Brownfields Statue Law Amendment Act has several provisions for
municipalities. Which of the following statements is correct in this regard?
A. To encourage cleanup, utilization and redevelopment of abandoned or contaminated
lands.
B. The discourage municipalities from redeveloping abandoned and contaminated land by
making the process complicated.
C. To make the municipalities, developers and lenders accountable if they get involved in
giving permission, developing or financing contaminated land by way of increasing their
future legal and financial liability.
D. Provide financial relief to municipalities by decreasing their assessment base by way of
reducing the ability of developers and lenders in buying and financing contaminated
lands.
24. Municipalities may take possession of a property for unpaid tax arrears. Such property may
be sold for recovery of taxes owing. Which of the following statements is correct with respect to
these municipal tax sales?
A. Once the cancellation price has been established and included in the Tax Arrears
Certificate, the municipality cannot sell the property for more value.
MiniCram Notes 104

B. The municipality must notify mortgagee, if any, and the mortgagee may then prevent the
sale by paying the cancellation price.
C. The municipal tax sale is invalid if a registered real estate brokerage is not hired for sale.
D. Even if one year's taxes are in arrears, the municipality can go ahead with sale of the
property to recover unpaid taxes.
25. Changes to zoning by-laws may affect the conformity status of commercial properties.
A. If the use of the property was changed after passing the zoning by-law, a non-conforming
use would still be legal.
B. Non-conformity of uses frequently occurs in commercial areas only but not in residential.
C. Municipal permission is required if a legal non-conforming use building needs to be
modified or enlarged.
D. The legal non-conforming use does not bind to land and if the property is sold, the use
becomes illegal.
26. Real estate registrants must be proactive with environmental issues related to a parcel of
land. Awareness of clues which indicate possibility of contamination can greatly reduce their
errors and omissions risk. Which of the following statements is correct in this regard?
A. It is easy to identify contamination of land because the main cause is the above ground
storage containers.
B. A property that does not have any visual clues may still be contaminated due to
underground flow of from an adjacent site.
C. Owners of contaminated lands have limited liability which does not extend beyond the
actual boundaries of their land.
D. Registrants need not pay much attention to contamination because a majority of such
land has already been identified.
27. Just one month after getting her salesperson registration, Sandy lists a grocery store and
proudly advertises the features of the business in a local newspaper. A buyer calls Sandy for a
showing and, after much negotiations, the business is sold. After closing, the buyer calls Sandy
to complain that the sellers had removed the freezer, although it was not a fixture. The freezer
actually belonged to the supplier of dairy products. Sandy tells the buyer that this was the first
time she sold a business and she did not know about complexities involved.
Has Sandy breached any of her obligations by her conduct?

A. Yes, Sandy has an obligation of providing competent and conscientious service to her
clients.
B. No, the buyer should have known that such items are generally owned by suppliers and
not the sellers.
C. No, Sandy should has shown average diligence and the buyers should be aware of her
limited duties.
D. Yes, Sandy should have included the freezer in the agreement irrespective of the fact
that it not owned by the seller.
28. Read the statement given below:

"This type of investment arrangement has a general partner who has unlimited liability and
operates the commercial property. Other partners are only passive investors whose liability is
MiniCram Notes 105

limited to the amount they invest and profits they share. These passive investors do not actively
participate in the operation of the commercial property."
This type of arrangement between two or more investors is knows as:

A. Limited Partnership
B. Partnership
C. Corporation
D. Investment Trust
29. Real estate registrants may sign confidentiality agreements with buyers and sellers of
commercial properties. Which of the following is would not be typically included in this
agreement?
A. The brokerage or its employees shall not disclose client’s information to any third party.
B. The brokerage shall return all documents on demand or when the transaction is
completed.
C. The brokerage or its employees shall use the confidential information only for the
intended purpose.
D. The brokerage shall be held liable if any information generally known in the commercial
trading market is disclosed.
30. The standard Agreement of Purchase and Sale - Commercial contains a 'Residency' clause.
According to the pre-printed wording of this clause, which of the following is correct?
A. The seller of a commercial property must give a statutory declaration that he is a non-
resident.
B. A non-resident seller must pay the Capital Gains Tax in advance and deliver a certificate
to the buyer.
C. If the non-resident seller gives certificate of payment to the buyer, then the buyer shall
not claim such amount as credit.
D. A non-resident seller must give credit to the buyer to satisfy buyer's liability of seller's
Capital Gains Tax.
31. Which of the following is a correct statement regarding a salesperson working as

independent contractor with a brokerage?
A. The brokerage is not responsible for the conduct of the salesperson while trading in real
estate.
B. The brokerage is not obligated to provide any training, mentoring or coaching to the
salesperson.
C. The salesperson must pay a monthly desk fee in order to be employed by the brokerage.
D. The brokerage is not responsible for taxation matters related to salesperson’s income or
expenses.
32. Which of the following statements is/are correct regarding a career in commercial real
estate?
A. Planning in advance is not much effective when handling queries for a listed commercial
property because every property is unique.
B. Telemarketing activities may fall under certain federal statues and are equally applicable
to both residential and commercial trading activities.
MiniCram Notes 106

C. When listing a commercial property for sale the registrant can ignore the contracts of the
seller with utility and management companies because buyers are typically not
interested.
D. The registrant should focus on larger commercial projects in the beginning to gain as
much knowledge as possible.
33. If the floor area ratio for a typical industrial zone is 2.5 and a lot has gross area of 3,600
square feet, what would be the maximum building size permitted on the lot?
34. Investor Jim is analyzing a Design/Build option for his tenant client based on his return on
investment in building costs. The selected parcel of land is 5 acres is size listed at $245,000 per
acre. The zoning by-laws permit a maximum coverage of 40% of the total lot size. The soft cost
is $10.50 per square foot; hard cost is $37.95 per square foot while the development cost per
square foot is $12. If the tenant client is ready to pay annual rent of $9.50 per square foot, what
would be Jim’s return on investment? (1 Acre = 43,560 Square Feet)
A. 10.36%
B. 11.52%
C. 12.75%
D. 14.20%
35. The following financial information is available from the owner of a business:
• Gross Annual Sales are $680,000
• Cost of Goods are $402,460
• Operating Expenses are 32.25% of Gross Margin
Based on the above information, what would be the estimated value of the business based on a
capitalization rate of 20%?
A. $940,166.75 rounded to $940,000
B. $1,234,980 rounded to 1,235,000
C. $1,470,565.79 rounded to $1,471,000
D. $1,804,236.21 rounded to $1,804,000
36. A commercial building has 128,000 square feet of total rentable area and 110,500 square
feet of total usable area. If a tenant in this building has 1,970 square feet of usable area, what
would be his rentable area rounded to nearest square foot?
37. A tenant leases a retail unit in a shopping centre that has 78,000 square feet of total
rentable area and 68,870 square feet of total usable area. The tenant’s usable area is 2,350
MiniCram Notes 107

square feet. The annual operating expenses for this shopping centre are estimated to be
$856,700. What would be the tenant’s annual additional rent?
A. $18,905.02
B. $21,983.48
C. $23,900.30
D. $29,232.54
38. The base minimum rent for a retail unit is $13.50 per square foot per annum. The
percentage rent clause specifies 5.5% of gross annual sale over the base minimum. A tenant
leases rentable area of 2,200 square feet unit in this shopping centre. The gross annual sale for
the first year is expected to be $700,000. What would be the base minimum rent, the base sale
amount and the percentage rent?
A. $29,700; $540,000; $8,800
B. $29,700; $478,920; $8,200
C. $29,700; $368,000; $9,450
D. $25,400; $540,000; $8,200
39. A commercial building was purchased for $450,000 approximately 18 years ago. Over all
these years, the owners spent $120,000 on its renovation. The adjusted cost base was
established at $950,000. The building was sold last year for $1,350,000. The cost of sale was
estimated at $64,500, which included legal expenses and realty commissions. What was the
amount of Taxable Capital Gain from this sale?
A. $189,560
B. $215,500
C. $167,750
D. $335,500
40. A commercial property is purchased in April 2014 for $1,560,000. The land and building
allocation of the purchase price is 40/60. The CCA rate for the building and improvements is
4%. What would be the Undepreciated Capital Cost at the end of 2 years of ownership?
A. $36,691
B. $880,589
C. $970,280
D. $936,000
This case study is based on your understanding of various clauses in commercial lease
agreements.
41. A typical retail lease contains the following clause that makes reference to ‘Continuous Use’
of the premises by the tenant during the term of the lease:
“Tenant shall, upon the commencement of the lease term and throughout the term, with
adequate staff and stock of new merchandise and fixtures of first-class quality, be open for
business and continuously, actively, and diligently operate and conduct its business in the
whole of the premises in an up-to-date, first class, and reputable manner befitting a first-class
shopping centre.”
MiniCram Notes 108

Why would the landlord require that the tenant continuously uses the retail unit?
A. The landlord wants to ensure the rent is paid if the tenant moves out.
B. The landlord wants to set out the guidelines for the tenant to sub-let the premises.
C. The landlord wants to give the tenant the right to terminate the lease on one month's
notice if the tenant discontinues operations.
D. The landlord does not want dark space in the mall that may result in less customer traffic.
42. Carefully analyze the wording of the following clause and answer the question in the end.
This clause in a typical commercial lease is known as ‘INTENT OF LEASE’.
“It is the intent of the parties hereto that the rents reserved pursuant to this lease shall be
absolutely net to the landlord free and clear of all payments, charges, or obligations
whatsoever, excepting only taxes personal to landlord including income tax on the income and
landlord’s financing costs and that all costs, expenses, or outlays of any kind related to the
premises shall be borne by tenant and that tenant shall, by payment of tenant’s proportionate
share of landlord’s occupancy costs, share in the burden of all costs, expenses and outlays of
any kind related to the common areas except as aforesaid.”
How would you explain the purpose and meaning of this clause to your tenant client?
1. The landlord wants the tenants to share all costs related to the operation of the mall by
charging additional rent.
2. The landlord wants to ensure that the landlord’s occupancy costs including his personal
taxes and cost of financing are paid for jointly by all tenants.
3. The landlord wishes to transfer all costs related to operation of the mall to the tenants except
his own income taxes and financing costs.
4. The clause clarifies that the tenant is responsible for a fixed net rent and a fixed amount of
additional rent.
5. The tenant’s payments shall be based on his proportionate share of common areas.

C. Only statements 2 and 4 are correct.
Cram City Foodmart Inc. has seen significant fluctuations in net profits over the past four years.
The owner and a prospective buyer are negotiating an average profit over that period in order to
establish value using a capitalization rate of 18%.
The net profits for years 1 - 4 are as follows, with year 1 being the most recent.
Year 1 - $47,619; Year 2 - $40,533; Year 3 - $31,975 and Year 4 - $26,566.
43. What would be the estimated value of the business based on a simple average of the net
profits?
MiniCram Notes 109

A. $148,930
B. $203,740
C. $230,470
D. $310,280
44. Assume that the prospective buyer agrees to a weighted average of profits over the four-
year period, giving the greatest weighted to the latest years (i.e. 4x for year 1, 3x for year 2, 2x
for year 3 and 1x for year 4). What would be the estimated value of business using a Weighted
Average of net profits over the past four years?
A. $374,591
B. $253,360
C. $238,932
D. $223,662
45. The owners of Cram City Foodmart Inc. and the prospective buyer discuss the possibility of
financing the sale, earnouts and the offered price. Which of the following statements is correct in
this regard?
A. The value of the business can be based on assets only rather than using the
capitalization. Assets may include the goodwill and leasehold interest when the rent is
below market rent.
B. When using capitalization, if a high the capitalization rate is used, a higher value estimate
would be achieved.
C. It is relatively easy to finance a business as compared to a residential property because
business generates a steady income stream.
D. Most sellers prefer the earnout method of financing because the seller has a guarantee
that full asking price would be realized upon closing. Moreover, subsequent payments
by the buyer would ensure regular income to the seller.
Salesperson Kim or Cram Realty Inc. is working with a buyer client Smart who has signed a
Buyer Representation Agreement with her brokerage. Smart is interested in purchasing a rental
apartment building which has 16 units. This property is listed by salesperson Davis of the same
brokerage. The asking price is $1,200,000 and the seller wants a minimum $40,000 as deposit
by way of certified cheque.
Answer the following 5 questions based on this scenario.
46. Salesperson Kim is drafting an Agreement of Purchase and Sale – Commercial for the
property. She has inserted $40,000 in the Deposit clause, payable Upon Acceptance. Smart
tells Kim that he does not have the funds ready right away. He must wait until the closing date of
his current property to have the funds in his bank account. This might take about 10 days before
he has access to funds. Which of the following would be an appropriate method to deal with this
situation?
A. Kim can insert ‘As Otherwise Specified in this Agreement’ in the Deposit clause and
insert an appropriate clause in the schedule to specify when the deposit would be paid.
MiniCram Notes 110

B. Kim should tell buyer Smart not to worry because this listing is with her own brokerage
and she would take care of delay in paying the deposit.
C. The buyer should not worry because although the Deposit clause states ‘Within 24
Hours’, delays are common in commercial transactions.
D. Kim can tell the buyer that REBBA 2002 provides 5 days to deposit the funds in bank
account but even this is not enforced.
47. Kim arranges a meeting with the listing salesperson David to enquire about financial
statements of the property. She knows that the buyer wants to review them before a binding
contract is signed. David insists that the sellers shall provide such statements only after the offer
is accepted by both parties. How should salesperson deal with this situation?
A. Kim may advise the buyer that she would look for another property where sellers provide
financial statements.
B. A confidentiality clause may be inserted in the schedule to address the concerns of the
sellers.
C. Kim may insert a condition stating that the agreement would be null and void if the seller
does not provide financial statements before acceptance.
D. Kim can provide a Pro Forma Statement for the buyer to convince him that the financial
situation of the property is good.
48. Buyer Smart is concerned that the completion of the transaction might take about 6 months.
If there is a problem at a later date and the transaction does not close, the deposit would be
stuck with the seller. He would also lose interest on the deposit amount for 6 months. How
should salesperson convince the buyer with respect to the deposit amount?
1. The deposit remains in the Real Estate Trust Aaccount of the brokerage until completion or
termination of the agreement.
2. The brokerage can provide a statutory declaration that the deposit would be returned to the
buyer, regardless of the reason for non-completion of transaction.
3. A clause can be inserted in the agreement that the seller will pay interest on deposit to the
buyer.
4. If the brokerage is receiving any interest on deposit, it would be credited to the buyer, unless
a clause is inserted contrary to this.
5. A clause may be inserted in the agreement stating that the seller would keep only 10% of
deposit as penalty if the conditions are not fulfilled.

C. Only statements 3 and 5 are correct.
49. Kim makes appropriate changes to the agreement and drafts the offer again. The details of
the offer are as follows:
Buyer: Smart Jacobson; Seller: Cram Holdings Inc.
Offer Price: $1,130,000;
MiniCram Notes 111

Deposit: $40,000; payable by February 28, 20xx

Completion Date: August 30, 20xx
In addition to standard clauses in the agreement, Kim has inserted a Confidentiality clause and
the clause related to the delayed deposit to address buyer's concerns. The mortgage condition
states that the buyer needs to arrange a first mortgage in the amount of $750,000 within 7
business days from the acceptance of the offer. The sellers are also prepared to take back a
second mortgage in the amount of $300,000.
The offer is presented to the sellers on February 15, 20xx and is irrevocable by February 20,
20xx. The offer is countered by sellers with a purchase price of $1,160,000 and some other
minor changes. Buyer smart agrees to the changes by inserting his initials.
Now that the terms of the agreement are acceptable to both parties, which party signs the
Confirmation of Acceptance?
A. The seller because, being owner of the property, the seller has the ultimate right to sell
the property.
B. The buyer signs the Confirmation of Acceptance at the time of making the offer.
C. The seller signs the Confirmation of Acceptance at the time of making the counter offer.
D. The buyer, because this is the last party to accept the terms of the counter offer.
50. What should be the correct amount in the Balance Due Upon Completion clause in
Schedule A?
A. $70,000
B. $370,000
C. $820,000
D. $1,120,000
---------------------
MiniCram Notes 112

QUICK ANSWER KEY
SAMPLE EXAM 3
1. C 2. C 3. B 4. D 5. D
6. C 7. D 8. B 9. B 10. D
11. B 12. B 13. C 14. C 15. D
16. A 17. C 18. B 19. A 20. D
21. B 22. B 23. A 24. B 25. C
26. B 27. A 28. A 29. D 30. C
31. D 32. B 33. D 34. C 35. A
36. B 37. D 38. A 39. C 40. B
41. D 42. D 43. B 44. D 45. A
46. A 47. B 48. D 49. D 50. C
---------------------
MiniCram Notes 113

SAMPLE EXAM 4

1. The term 'Net Absorption Rate' in office buildings refers to:

A. The ratio of new office space to total available office space at a given point of time
B. The ratio of unleased office space to total available office space at a given point of time.
C. The difference between the new available office space for lease and the office space
leased over a given period of time.
D. The difference between total available office space and office space leased over a period
of time.
2. 'Power Centres' in retail sector have become popular because:

A. Power is a basic requirement for every retail business.
B. Many big box retailers are located within the same complex.
C. Big Box retailers are located far away and there is no competition.
D. They are located in core downtown areas.
3. Under which of the following circumstances, the investor of commercial real estate would
tolerate negative cash flow?
A. When the negative cash flow occurs only after considering the annual debt service.
B. When the investor believes that he can increase equity return by decreasing the positive
leverage.
C. When the investor does not finance the property but makes a cash purchase.
D. When the investor believes that the property value would increase, and he would be able
to make profit.
4. Which of the following best describes the market risk for an investor of commercial real
estate?
A. The building may suffer deterioration or structural damage.
B. The overall investment climate may not be favourable in future.
C. The real estate market is volatile and may suffer ups and downs.
D. Inflation may adversely affect the purchasing power of dollar.
5. Under the Real Estate and Business Brokers Act 2002, when a brokerage is involved in sale
of a business, certain documents must be provided to the buyer before a binding agreement
takes place. Which of the following is NOT one of them?
A. A statement of assets and liabilities of the business.
B. A statement of profit and loss statement for the previous 12 months or ever since the
seller acquired the business.
C. A list of items not included in the sale.
D. An affidavit by the seller with respect to various financial aspects of the business.
MiniCram Notes 114

6. Which of the following statements is correct with respect to commercial tenancies?

A. The Efficiency Factor for a commercial building is calculated as the difference between
total Rentable Area and the total Usable Area.
B. The rent-free period given to a particular tenant as concession is calculated on total
annual rent.
C. The R/U Factor and the Gross Up Factor are synonymous terms.
D. The Gross Up Factor for a commercial space may increase rent obligations for the
tenant.
7. To be effective, a commercial lease:

A. Must be prepared under the Short Form of Leases Act.
B. Must have a definite term specifying the start date and the expiry date.
C. Must be for a term of at least 3 years.
D. Must have a table of contents for various clauses.
8. Which of the following statements is correct with respect to commercial leasing?

A. Most commercial leases do not have any provision for privity between the landlord and
the subtenant.
B. If the landlord does not approve the sub-tenant, the sub-tenant can file a complaint under
the Commercial Tenancies Act.
C. If the sub-tenant does not approve the head lease, the sub-tenant may cancel the sub-
lease.
D. The head lease is binding only on the tenant but not on a sub-tenant.
9. A commercial lease where the tenant is responsible to pay proportionate share of common
expenses including property tax, but does not pay for major structural repairs is known as:
A. Net Lease
B. Double Net Lease
C. Gross Lease
D. Semi-Gross Lease
10. Which of the following statements is correct with respect to sale and lease of commercial
properties?
A. The Family Law Act applies to residential properties but not to commercial properties.
B. Both the Agreement to Lease and the Lease are prepared by buyer brokerage.
C. The Consumer Report clause is included in commercial agreements but not in
residential.
D. A commercial tenant is not considered a 'Consumer' under the Consumer Reporting Act.
11. Disclosure of environmental hazards must be made to potential buyers of development land.
Which of the following would not be a part of this disclosure?
A. Soil contamination due to underground oil tank.
B. That the land was never used.
C. Previous chemical operations on the land.
D. That the land was previously used as a dump site.
MiniCram Notes 115

12. In most design/build projects the developers analyze their return on investment based on
land and building costs. In this regard, it may be correct to state that:
A. The cost of land is a major factor during analysis whereas the soft costs and hard costs
are paid for by the long-term tenant over a period of time.
B. Hard cost refers to the cost of materials and construction whereas the soft cost refers to
the development charges of the project levied by the municipality.
C. The cost of land per buildable square foot typically increases the effective cost of
acquiring development land.
D. Rentals rates prevailing in the town do not normally affect the developer’s rate of return
of the developer but the soft costs play a major role in investment analysis.
13. The buyer of a 16-unit rental apartment building is demanding all financial statements from
the seller. The seller has all his financial records in order but has some concerns regarding
giving them all to the buyer before there is a firm offer. Which of the following would be the best
option for the salesperson involved in this transaction?
A. Convince the seller that the buyer has no right to obtain financial statements.
B. Inform the buyer if financial statements are to be provided, the offer must be
unconditional and firm.
C. Inform the buyer that apartment buildings are typically sold without provision of financial
information.
D. Include a list of selected financial statements that would be provided and include a
confidentiality clause in the agreement.
14. Registrants should ensure that all registered owners names appear on the Agreement of
Purchase and Sale and that they all sign the Agreement. Which of the following statements is
correct as it relates to owners and their signatures?
A. When dealing with a corporation, in lieu of a seal, the person signing the offer should
have signing authority and beside their signature, they should write ‘I have the authority
to bind the corporation’.
B. When dealing with an estate, where there is more than one trustee, only one trustee’s
signature is required on an Agreement to make it valid and enforceable.
C. A Power of Attorney to sign for the owner of a property can be verbal rather than written
if the person appointed as the Power of Attorney is a relative or the lawyer of the owner.
D. All persons who have any interest in a property must be shown as owners on the
Agreement of Purchase and Sale.
15. Broker Binny is reviewing some financial statements given to him by the business owner
who wants to sell his business. These statements run into several pages and include many
sections. In which section Binny would most likely find the amounts owed by the business to
other parties?
A. Capital Expenses
B. Statement of Assets and Liabilities
C. Profit and Loss Statement
D. Operating Expenses
16. A tenant has voluntarily moved out of his retail unit without informing the landlord. Most of
his merchandise is also missing from the store. The landlord determines that this tenant has no
intention to return and operate his business. This type of action by a tenant is known as:
MiniCram Notes 116

A. Abandonment
B. Eviction
C. Termination Notice
D. Adverse Possession
17. Smart is a client of Cram Realty Inc. and is working with salesperson Hadley for leasing a
unit is the Southwest Shopping Centre. Smart and Hadley are discussing the contents of the
lease provided by the landlord. Carefully analyze the following statements provided by Handley:
1. Based on the wording of the lease, the landlord can include the cost of maintenance of two
large pylons signs located at the entrance, based on the wording of the lease.
2. Tenant may be able to assign the lease during the term but cannot sublet all or a portion of
the unit without the prior consent of the landlord.
3. In case of damage to the unit, if the tenant does not make necessary repairs, the landlord
can make those repairs and charge the tenant for the cost.
4. The tenant will be required to remain open during the normal business hours of the shopping
centre but certain tenants, with the approval of landlord, may stay open for late hours.
5. All tenants, including Smart are required to pay an amount of $8,000; which is to be applied
towards the first and last month of the base minimum rent.
A. Only Statements 1, 2 and 5 are correct.

B. Only Statements 1, 4 and 5 are correct.
C. Only Statements 1, 2 and 4 are correct.
D. Only Statements 1, 3 and 4 are correct.
18. The legal principles under common law are very complex with respect to assignment and
subletting of commercial leases. Which of the following statements is correct on this topic?
A. Landlords prefer assignment to subletting because when subletting takes place, the
original tenant is no longer responsible for the lease.
B. Landlords typically ensure that detailed clauses are included in lease agreements that
require consent of the landlord or termination of the lease in the event of assignment or
subletting.
C. Lease clauses can require the landlord’s approval of subletting, but common law does
not permit such a clause for assignment.
D. Because of the concept of privity of contract, a landlord has no control over the
assignment or subletting of a commercial lease.
19. Broker Binny is having a conversation with his investor friend Smart. Smart asks certain
questions regarding taxation matters. Binny makes the following statements:
“Careful analysis of financial arrangement when investing in commercial properties may result
in reduction or elimination of taxes. The Income Tax Act provides allowance for capital costs
on income producing properties and helps in reducing taxes payable on operations cash flow
as well as sale proceeds cash flow.”
What is the main topic of discussion in the above statement?

A. Risk
B. Cash Flow
C. Tax Sheltering
MiniCram Notes 117

D. Leverage
20. Smart purchased two properties in 2009 for the purpose of investment. He sold both in 2015
and made good profit on sale. In his 2015 annual tax return, he claimed the profit as Capital Gains.
Canada Revenue Agency sends a letter to Smart concerning his tax return. If Smart claims that
these properties were a part of his overall investment program:
A. Canada Revenue Agency must accept the taxpayer’s claim and treat the profit as
Capital Gain instead of treating it normal business income.
B. This may be treated as a valid argument for Capital Gain, provided the taxpayer is able
to support his claim.
C. The profit from sale of investment properties is always treated as Capital Gain and this
should not be a matter of dispute.
D. The taxpayer must go to the Tax Court of Canada to get an order that the gain realized
is capital in nature and not a business income.
21. Due diligence documents regarding purchase of a commercial property is an important

consideration for buyers. In this regard, which of the following statements is correct regarding a
balance sheet?
A. Is solely based on the balance of inventory remaining when a business is sold.
B. Is the same as a profit and loss statement.
C. Includes information on assets, liabilities and equity.
D. Is only created in order to comply with REBBA 2002’s requirements for the sale of a
business.
22. Land contamination may render a property unsuitable for a specific purpose due to certain
prior uses of the land involving pollutants that have impacted the property. Real estate registrants
need to have awareness of the certain contamination clues when working with buyers of
development land. Which of the following statements are correct in this regard?
1. Registrants must be aware of the fact that an abutting land and its use may have
contaminated the soil and underground water of the land under consideration.
2. Registrants need to have sound knowledge of major soil and water contaminants that may
impact the intended use of land by a buyer.
3. Registrants need not be concerned about contamination because ‘Legal, Accounting and
Environmental Advice’ clause in the agreement states that the brokerages cannot be held
liable for any environmental hazards on the land.
4. Registrants must not ignore any visible clues of soil or water contamination; and if in doubt,
should insert appropriate clauses in the agreement to protect the best interests of the
buyer.
5. Failing to discuss environmental concerns with a buyer, while not being an expert, may help
reduce the errors and omissions risk for the registrant.

MiniCram Notes 118

23. Jimmy has completed all the pre-registration courses successfully in order to qualify for
registration as salesperson under the Real Estate and Business Brokers Act 2002. He has
decided which brokerage to work for and whether to operate as an independent contractor or
work as an employee. Which of the following statements is correct with respect to applying for the
registration as salesperson?
A. Jimmy must obtain proof of sufficient auto insurance coverage and RECO Consumer
Deposit Protection Insurance before sending application.
B. While independent contractor status may prove more expensive to Jimmy for the first
two months as a salesperson, he will benefit from the personal guidance and consulting
as compared to being in employee status.
C. Jimmy should send in his application to registration immediately and notify RECO after
approval of registration as to which brokerage he wants to work for.
D. If considered appropriate, RECO may obtain credit information on Jimmy and may refer
to a criminal search before approving the registration application.
24. New salespersons must use due diligence in conducting their real estate business. While
changes of fast progress are there, certain inherent problems also exist. Which of the following
is a correct statement in this regard?
A. Income from real estate trading business is unpredictable and several months may pass
without any completed transaction.
B. There is a guarantee of income from sales that involve lengthy negotiations and complex
paperwork.
C. Since the accountant takes care of taxation matters at the end of year, the salesperson
need not worry much about timely remittances.
D. Commercial buyers rarely back off from conditional sales and the salesperson may count
on commission income.
25. If the lot size is 7,200 square feet and the floor area ratio in a particular industrial zone is
1.5; what would be the maximum building size that can be built?
A. 1,765 Square feet
B. 3,529 Square feet
C. 5,400 Square feet
D. 10,800 Square feet
26. A vacant industrial lot has gross area of 75,028 square feet with a maximum of 42%
coverage permitted under the zoning. The land lost is estimated at $9.84 per buildable square
foot. The total of hard cost, soft cost and development cost is $72.86. The tenant for this
building is offering net rent of $8.50 per square foot per annum. What would be the return on
investment for the developer?
A. 9.53%
B. 10.28%
C. 11.49%
D. 13.50%
27. Investor Graham is interested to purchase a 30-unit apartment building located a 35 Cram
Square. The purchase price is $2,650,000. Graham will use $1,100,000 from his own resources.
He has arranged a loan for the balance amount for which the monthly payment is 7,188.50.
MiniCram Notes 119

The sellers have provided the following information for the subject apartment building:
• Annual Potential Rental Income is $360,000
• The applicable Vacancy and Bad Debt Rate is 3.5% of Annual Potential Income.
• Additional Income from Parking and Storage spaces is $11,250
• Annual Operating Expenses are estimated as 45% of the Gross Operating Income.
Based on the above information, what is the Cash Flow Before Taxes (CFBT) from this
building?
A. $86,262
B. $110,995
C. $161,393
D. $358,650
28. A restaurant business has an annual gross profit of $39,500. It is listed for sale at $109,000.
The annual operating expenses estimated are at $45,800. Market research suggests a Gross
Profit Multiplier of 2.5. What would be the estimate of value?
A. $114,500
B. $105,700
C. $98,750
D. $43,600
29. The following financial information is available from the owner of a business:
• Gross Annual Sales are $680,000
• Cost of Goods are $402,460
• Operating Expenses are 32.25% of Gross Annual Sales
Based on the above information, what would be the estimated value of the business based on a
capitalization rate of 20%?
A. $940,16.75 rounded to $940,000
B. $1,234,980 rounded to 1,235,000
C. $1,470,565.79 rounded to $1,471,000
D. $1,804,236.21 rounded to $1,804,000
30. A tenant leases a retail unit in a shopping centre that has 140,000 square feet of rentable
area and 122,000 of usable area. The tenant’s usable area is 4,200 square feet. The total
operating expenses for this shopping centre are estimated to be $2,226,500 annually. What
would be the tenant’s annual additional rent?
A. $66,795
B. $76,650
C. $88,123
D. $105,230
31. Cram City Liquidations Inc. has leased 2,200 square feet of rentable area in a local
shopping centre. The minimum rent is $18.50 per square foot of rentable space. The lease has
a percentage rent of 6.5% of gross sales over and above the base minimum. The gross sales in
the first-year sale was $600,000 and in the second year it is estimated to be $750,000. With this
MiniCram Notes 120

information, what would be the amount of percentage rent over the base minimum for the first
and second year?
A. $6,500 and $13,075
B. $1,300 and $8,050
C. Nil and $8,050
D. $18,400 and $39,000
32. Owner Michael incorporated a business on July 15, 20xx. He purchased $24,200 worth of
office equipment and furniture on August 25th of the same year. The CCA class for these items
is 20%. Calculate the Undepreciated Capital Cost (UCC) at the end of 2 years.
A. $4,614.58
B. $9,229.16
C. $14,723.93
D. $18,458.30
33. A capital asset is purchased for $10,000 with a Capital Cost Allowance (CCA) at 5%. Which
of the following statements is true?
A. The amount of depreciation for the first year using the 50% rule would be $2,500
B. The Undepreciated Capital Cost (UCC) after the second year, if all allowable
depreciation was taken and using the 50% rule would be $7,500
C. The Undepreciated Capital Cost (UCC) after the first year using the 50% rule would be
$9,750.
D. The unused Capital Cost Allowance (CCA) cannot be forwarded to the following year if it
is not used within the allotted year.
34. Broker Binny’s real estate brokerage was incorporated 2 years ago. The brokerage began
its operation with existing equipment and furniture, which had an undepreciated capital cost of
$48,100 as of January 1, 2016. The brokerage purchased more new equipment at a cost of
$15,800 in July 2016. During the same year, the brokerage disposed of some of its used
equipment worth $12,400. This used equipment had a capital cost of $11,000 and falls in a
class where the CCA rate is 20%. Based on this information, calculate the CCA for the year
2016 and the undepreciated capital cost at the beginning of next year 2017.
A. $10,100; $42,800
B. $9,620; $48,400
C. $12,400; $58,600
D. $11,000; $49,100
35. Investor Brown purchased an industrial property in 1985 for $128,000. On August 15, 1999
Brown got an appraisal of the property for taxation purposes. This appraisal indicated a value
estimate of $210,000. He had claimed a total of $328,400 in Capital Cost Allowance over the
entire period of ownership. Due to deterioration of the building and increasing land costs, the
property was sold in 2014 for $1,250,000. However, the value of the building at the time of sale
was zero. What would be the amount of Recapture of previously claimed Capital Cost
Allowance as a result of this sale?
A. $164,000
B. $210,000
C. $328,400
D. Zero
MiniCram Notes 121

Your commercial client is studying the lease document provided by the landlord. He wants you
to explain him a clause titled ‘Damage to Premises’ in the lease.
►Note: Please refer to Chapter 8 of the text book to study the clause.
36. How would you interpret the wording of this clause?

1. Any damage to a tenant's leased premises will result in an abatement of rent irrespective of
the amount of damage.
2. The tenant will not be responsible for any rent payments during the period the premises is
not available for use.
3. No abatement in rent will apply if the tenant or any of its employees are involved in causing
the damage.
4. The clause limits the time frame for repair of damage to 10 days.
5. The reduction in rent will be proportional to the area which is not usable due to damage.
Which of the above statements is/are a correct interpretation of the clause?

37. The client is still not clear about this clause. Which of the following is NOT a correct
A. This section of the lease is also known as Damage and Destruction clause.
B. The purpose of this section is not abatement of rent but that the unit cannot derive profits
in case of damage.
C. The landlord ensures that even if there is damage to the unit or the shopping centre, the
tenant keeps on paying the rent.
D. The clause ensures that the landlord makes repairs in an expedient way so that the
tenant may resume its business as early as possible.
►Note: This case study is based on the Agreement of Lease – Commercial. We are
providing sections of the Agreement for reference so that you may answer these questions.
In case such a case study appears in the exam, a complete agreement would be provided.
The Westside Factory Outlet Mall is located in Anycity is owned by 999998 Ontario Inc. Michael
Petrovic, the regional manager, is authorized to sign all documents on behalf of the corporation.
The listing for the lease clearly states that the lease is to be for a maximum term of 5 years with
a renewal option of 3 years, upon 90 days’ notice before expiry. The list price is $17 per square
foot for the first 3 years and then $18 for the remaining two years. The listing brokerage is ABC
Realty Inc. and the listing Salesperson is F. Lane.
Mrs. Karen Abdi, the president of Just for Ladies Inc. is interested in leasing a 2,000 square feet
(rentable area) unit in this mall. Mrs. Abdi is ready to offer a rent of $15 for the first three years
MiniCram Notes 122

and $18 for the remaining two years. Salesperson Warden of ABC Realty Inc. has prepared the
Agreement to Lease- Commercial for his client Just for Ladies Inc.
Illustration 1
Illustration 2
MiniCram Notes 123

Illustration 3
Carefully analyze the above shown parts of the offer and answer the following questions.
38. Do you see any critical mistakes on the first page of the offer?
1. Mrs. Karen Abdi’s name should appear as tenant instead of Just for Ladies Inc.
2. It is not clear in the offer whether the area of 2,000 square feet is Rentable or Usable.
3. The date of commencement of the lease should be 1st of July and not 1st of August.
4. The use of the unit is vague and must be specific such as ‘Clothing Store’.
5. The term of the lease is incorrect, and it should be 1st of August to 31st of July.
A. Statements 1, 2 and 3 are correct.

B. Statements 2 and 3 are correct.
C. Statements 4 and 5 are correct.
D. Statements 1, 3 and 4 are correct.
39. Do you have any concerns with the way rent calculations have been completed?
1. The rental for the first year should be $30,000 based on $15 per square foot.
2. The rental details for each year must be spread in all five lines.
3. The monthly rent in the second line should be $3,600.
4. The details of the rental are not clear, and these should be spread in all five lines or a
note be inserted specifying the rent structure.
5. The first month rent has to be deducted from the rent calculations because it is being
paid with security deposit.

B. Statements 1, 3 and 5 are correct.
C. Statements 2, 3 and 5 are correct.
D. Statements 1 and 4 are correct.
40. Is there any critical mistake regarding the Deposit clause and the amount of deposit?
1. The deposit cannot be specified as ‘Herewith’ because ‘Upon Acceptance’ is the industry
standard.
2. The amount of deposit is incorrect and it should be $6,215.
3. The deposit must be payable to ABC Realty Inc., which is the listing brokerage.
MiniCram Notes 124

4. The deposit amount and the prepaid rent must be specified separately.
5. If the deposit is payable to the landlord, the salesperson should delete the words ‘Held in
Trust’ if the landlord does not have a trust account.

B. Statements 2 and 5 are correct.
C. Statements 2, 3 and 5 are correct.
D. Statements 1 and 3 are correct.

►Important Notes
➢ Students are advised not to memorize any of these questions.

➢ These 10 questions are included here for general understanding of offer
basics.
➢ Typically, only 5 questions appear in the exam.
Please refer to the Agreement of Purchase and Sale – Commercial provided in
the exam.
41. Do you have any concerns with the way the Legal Description of the property has been
provided?
A. The reference to an easement cannot be included in the legal description of the

property.
B. A major hydro easement is indicated but there should be a clause with respect to an up-
to-date survey of the property.
C. The legal description does not include any Reference Plan number.
D. Two lots i.e. Lot 8 and Part of Lot 9, cannot be sold in a single Agreement of Purchase
and Sale.
42. Is there any problem with the Deposit or the amount of deposit?
A. No, but the deposit must be at least $92,250; which is 10% of the purchase price.
B. Yes, the deposit must be either ‘Herewith’ or ‘Upon Acceptance’ and it cannot be
described otherwise.
C. Yes, the deposit cheque must be in the name of ABC Realty Inc.
D. No, the deposit amount is not a concern but none of the schedules includes any clause
to specify when and how the deposit amount would be paid.
43. The Information on Brokerages section indicates that two different brokerages are involved
in the transaction. But the Notices clause does not include any reference to fax numbers or
email addresses for sending or receiving of notices. Is there any problem with this?
A. No, the Notices clause may be left blank if the buyers and sellers have given specific
instructions for personal delivery of notices.
B. This is a mandatory section and must be completed in order to avoid legal problems.
C. The email addresses may be left blank, but the fax numbers of brokerages must be
provided.
MiniCram Notes 125

D. Since both the buyer and the seller are represented by brokerages, the Notices clause
must be left blank as shown.
44. Do you have any concern with the ‘Requisition Date’ within the Title Search clause?
A. No, the date is perfect because the buyer’s lawyer must get over one month for title
search.
B. No, the title search must begin right after the Confirmation of Acceptance has been
signed.
C. Yes, the Requisition Date is too early and should be after the conditions have been
fulfilled or waived.
D. Yes, the Requisition Date is a distinct date from Title Search date and it must be
specified in a separate clause in the Schedule.
45. Do you notice any concerns with the way the Balance Due Upon Completion clause has
been drafted?
A. Yes, there is no provision that the amount is to be held in Real Estate Trust Account of
the listing brokerage.
B. No, the clause is well written, it contains all essential elements and the balance amount
of $430,000 is correct.
C. Yes, the amount should be $530,000 because the Seller Take Back in the amount of
$100,000 should not be deducted.
D. Yes, the amount should be $775,000 because the Assumed Mortgage in the amount of
$345,000 should not be deducted.
46. The agreement includes a provision that the seller is taking back a mortgage in the amount
of $100,000. Do you have any concerns with the way the Seller Take Back clause has been
drafted?
A. Yes, the words ‘Not Less Than’ should be included with the amount of the seller take
back mortgage.
B. No, the clause is well written except that the amortization period has not been included
and this may be a problem.
C. No, the clause the poorly written because the interest rate must be more than the
interest rate of the first mortgage.
D. Yes, the seller take back clause should be written as an agreement clause and not as a
conditional clause.
47. What is your assessment with respect to the clause for ‘Due Diligence’ documents related to
structural, fire, mechanical, surveying, appraisal, etc.?
A. The clause is poorly written because a condition precedent clause typically includes a
Waiver provision.
B. As a standard practice, each document must be written in a separate clause because of
the time required to inspect may be different.
C. The time period provided in the clause is more than a month and an Escape clause
should be included in order to protect the seller’s interests.
D. The clause is poorly worded because it is the seller, not the buyer, who needs to send a
notice that the condition has been fulfilled.
MiniCram Notes 126

48. Do you notice any concerns or problems the way Buyer’s signatures are inserted?
A. Yes, the name of the person acting on behalf of the corporation should be inserted
instead of the corporation name.
B. No, there is no problem with the way this section is completed but a corporate seal must
be used.
C. Yes, the name of the Buyer corporation is inserted but the signature of the person acting
on behalf of the corporation is missing.
D. No, there is no problem with the way this section is completed but the words ‘I Have the
Authority to bind the Corporation’ must be included.
49. Based on the financial details given in the Agreement of Purchase and Sale and the
Schedules, do you see any missing clauses related to mortgage?
A. No, the clauses are well written, and no required clause is missing.
B. Yes, a postponement clause is required because the first mortgage comes due before
the second mortgage.
C. No, the clauses are well written, but the Mortgage Assumption clause must be a
conditional clause.
D. Yes, the clause for a new first mortgage is missing from the schedules because every
agreement must have a clause for arranging a new first mortgage by the buyer.
50. Based on the chronology of events mentioned in the Agreement of Purchase and Sale,
which of the following is a correct statement?
A. The exact date of completion should be mentioned in the Balance Due on Completion
clause.
B. The Acknowledgement date cannot be the same date as the date of Confirmation of
Acceptance.
C. The Confirmation of Acceptance cannot be signed before the Irrevocable date of April 16,
2017.
D. If the date on the first page of the offer is not the same date as the buyer signs the offer,
then that date is considered as the offer date.
---------------------
MiniCram Notes 127

QUICK ANSWER KEY
SAMPLE EXAM 4
1. D 2. B 3. D 4. C 5. D
6. D 7. B 8. C 9. B 10. D
11. B 12. C 13. D 14. A 15. B
16. A 17. D 18. B 19. C 20. B
21. C 22. B 23. D 24. A 25. D
26. B 27. B 28. C 29. A 30. B
31. C 32. D 33. C 34. A 35. D
36. B 37. C 38. C 39. D 40. B
41. B 42. D 43. A 44. C 45. B
46. D 47. A 48. C 49. B 50. D
---------------------
MiniCram Notes 128

PART IV - DETAILED ANSWERS
SAMPLE EXAM 1
1. A. When availability of commercial available space is high, and demand is low, the rental
rates tend to decrease. This is a simple supply and demand rule. It is incorrect that there will be
no effect on rates or that the rental rates will increase due to low demand. Also, negotiations for
a particular building are unlikely to affect rental rates in the market.
2. C. The setback requirements in zoning by-laws do not specify the procedures for creation or
registration of a commercial subdivision. These regulations are included the provincial Planning
Act. Zoning by-laws typically include minimum setbacks requirements, maximum lot coverage,
maximum height of buildings and permitted uses.
3. D. A restriction on ground lease arrangement is that when the tenant wants expansion of the
building, the landlord may not permit the desired expansion. Other statements related to the
ground lease are incorrect because they are benefits of ground lease arrangements.
4. D. The infill zoning for selected developments may permit limited commercial uses such as
offices, retail or convenience stores.
Other statements regarding infill zoning are correct.
5. B. The Income Tax Act provides for an exemption of up to $750,000 in Capital Gains Tax
exemption to qualifying farmland on all or a portion of capital gains, regardless of who the buyer
is. It is incorrect to say that the seller of farmland must pay Capital Gains Tax whenever
farmland is sold. This is because certain exemptions exist. Farmland without depreciable
property or a farmland with depreciable property are treated differently for calculations of capital
gains or for recapture of previously claimed capital cost allowance. In general sale of farmland is
treated in similar manner for the purposes of capital gains tax.
6. B. Floor load refers to live load on a structure which includes weight of the persons who
would assemble in a structure, the weight or equipment or machinery and the weight of the
materials to be stored in the building.
Building structural standards in Ontario Building Code specify floor load for a particular building
and it depends on the type of the structure and its use. It is incorrect to state that floor load does
not include the dead load. Dead load refers to the load of the structural components only. Floor
load requirements are for both residential and commercial buildings.
7. C. Soft cost includes project management, engineering, legal and consultation fees, along
with connection fees and financing charges. The valuation process may be done using direct
comparison approach, cost approach or income approach.
Hard cost includes cost of land cost, and all other structural, mechanical and electrical
components. It also includes the cost of excavation, filling, landscaping, asphalt, curbs, etc.
Zoning restrictions such as maximum coverage, maximum building height, etc. usually increase
the land cost for the developer. The land cost per buildable square foot may be much higher
than the initial land cost per square foot.
MiniCram Notes 129

8. B. A JIB crane has an arm attached at an angle to a mast. The mast can rotate 360 degrees
and allows for movement of materials anywhere inside the structure. A bridge crane operates on
horizontal rails and requires column free areas. A gantry crane is a special type of bridge crane
with the difference that it can be used both inside and outside of the building. It is incorrect that
most industrial buildings have all three types of cranes because crane requirements depend on
specific industrial use.
9. C. This statement is incorrect. Farm quota allocated to a particular farmer is not automatically
transferred to the buyer. Registrants dealing with sale of farm property must include a condition
that the sale will not become binding if the farm quota is not transferable to the buyer.
Other statements are correct about different types of farm quota and marketing boards.
10. B. The Minimum Distance Separation (MDS) requirements for livestock and manure storage
buildings are specified in MDS II. MDS I requirements specify the minimum distance
requirements for fertilizer storage facilities.
The Nutrient Management Act does not provide exemption to farmers from obtaining building
permits for farm related structures. The MDS requirements for storage of fertilizers are different
from facilities for storage of livestock and manure.
11. B. Even though zoning of an area permits a particular use of the property, a deed restriction
may still prohibit that use. This may be a matter of concern for the buyer of development land.
Other statements are not a matter of concern for the buyer but may prove good for him. An up-
to-date survey of the property precisely describes the shape, size, easements and
encroachments on the land. If owners of adjacent lands have been successful in obtaining
zoning by-law amendments, this is a good sign for the buyer. If the seller has obtained phase 1
Environmental Audit before listing the land for sale, this should not be a concern for the buyer.
12. C. Interested groups in rural areas that oppose development of new residential subdivisions
in their areas may appeal to Ontario Municipal Board if the municipality decides to approve a
residential subdivision.
It is incorrect that obtaining an amendment to Official Plan or Zoning is completely impossible.

Developers cannot avoid the subdivision control provisions of the Planning Act in rural areas by
creating a long-term land lease community. Obtaining approval for a residential subdivision in
rural areas is not easier than in urban areas.
13. C. Neutral leverage (no leverage) occurs when financing of the property does not make any
difference in return as compared to a situation when no financing is involved. Both situations
result in similar yield to the investor.
Positive leverage means that financing the property results in higher equity yield than the overall
rate of return. Negative leverage means that financing the purchase results in lower equity
return than the overall rate of return. Leverage is calculated by dividing the loan amount by the
value of the property (Loan to Value Ratio – LTV).
14. B. The user of an investment property is primarily interested in visibility, access and location
of the property. They have personal interest related to utility of the building.
MiniCram Notes 130

It is incorrect that users are only interested in return on investment, though that may be one of
the decision-making factors. Users typically focus on features which may help in attracting
tenants or in future resale of the property. Overall efficiency of the building, such as its layout,
helps in lowering operating costs and this is one of the key factors considered by users.
15. D. Market risk with respect to commercial investment involves trends in local real estate
market and occupancy rates.
Future taxation, overall economic activity and elimination of desired profits are, in fact, known as
business risk. Other statements regarding various risks involved in investment real estate are
correct.
16. D. If the buyer does not provide a list of items excluded from the sale, then all such items
(fixtures, chattels, goods and other assets which are related to or connected with the business
are deemed included in the sale.
The above explanation makes other options incorrect.
17. A. Only statements 1, 4 and 5 are correct. The franchise agreement of the seller may have a
provision that the franchisor must approve the sale of business. In that event, if the sale is not
approved by the franchisor, this buyer’s offer would become null and void. The franchise
business incurs additional operating costs because the franchisor charges regular fees from the
operating income. The advantage of a franchise business is that the franchisee receives a
readymade image and assistance in running the business from the franchisor.
It is incorrect the Confirmation of Acceptance is finally signed by the franchisor. The Sale of
Business Affidavit is required under REBBA 2002 when the seller does not provide financial
statements to the buyer.
18. C. The buyer must receive from the seller a list of items that are not included in the sale.
Other statements are incorrect. The profit and loss statement must be provided for the past 12
months or ever since the seller acquired the business. The statement related to assets and
liabilities of the business is not for the past 12 months. When financial statements are not
available, the Sale of Business Affidavit is to be completed by the seller and not by the listing
brokerage.
19. A. The R/U factor is the relationship between total rentable area of the building and total
usable area. It is same for the entire building and for every tenant. This factor is typically
specified by landlord’s architect.
The rent charged from tenants is based on rentable area and not the usable area. It is incorrect
to state that when rentable area is used for rent calculations, the additional rent is not
applicable. A commercial landlord is not required to give 60 days’ notice for termination of lease.
20. C. In a Triple Net Lease (Net/Net/Net Lease), the tenant is required to pay all expenses
including expenses incurred in repairs of major structural components. This is also known as
‘carefree to the landlord’ lease.
MiniCram Notes 131

In a Single Net Lease (Net Lease), the tenant pays the base rent and certain other expenses as
defined in the lease. In a Double Net Lease (Net/Net Lease), the tenant pays maintenance
expenses, operating expenses and property taxes. The term percentage lease allows the
landlord to share certain percentage of gross sales of a tenant over and above the base
minimum sale.
21. B. Commercial rents are subject to Harmonized Sales Tax (HST). HST is applicable to both
the base rent and the additional rent charged by the landlord.
The Agreement to Lease-Commercial form does not require that all services are to be paid for
by the tenant or the tenants are required to pay for the signage. These terms may be mutually
agreed between the parties. This form also does not mandate signing of a formal lease before
the start date of the lease.
22. D. The pre-printed wording of Agreement to Lease - Commercial permits the tenant to
assign the lease or sublet the premises only with prior written consent of the landlord, which the
landlord shall not withhold unreasonably.
Even if the landlord gives written consent for the assignment or sublet, the agreement wording
provides that the tenant shall remain liable to the landlord for lease obligations throughout the
term. There is no provision in the Assignment clause that the landlord reserves the right to
terminate lease when the tenant makes a request for assignment or subletting.
23. C. This statement is incorrect. A default on lease payments is not as onerous as default on
mortgage payments. This is a definite advantage to a tenant who does not want to invest all his
financial resources on purchase of commercial space and later, circumstances force him to go
into payment default.
Other statements regarding tenant’s perspective in leasing commercial space instead of buying
are correct.
24. C. When a property owner is in default of tax payments the municipality typically issues a
Tax Arrears Certificate and provides the owner with a copy of that. This certificate includes the
amount required to pay the tax arrears. This is known as Cancellation Price.
Other statements are incorrect. The owner does not lose ownership upon registration of Tax
Arrears Certificate. Tax sales may be done by either the Tender method or by Auction method.
If the property is auctioned, it is subject to minimum bid. The municipality must cancel the Tax
Arrears Certificate upon receipt of arrears. It is not automatic.
25. A. The Harmonized Sales Tax (HST) applies to most sales of real property unless there is
an exemption such as residential resales or residential leases.
While resale homes may be exempted from HST, commercial resales are not. Registrants
should not use the words ‘Included In’ for HST because HST is payable in addition to the
purchase price. There are no such criteria that an apartment building would be subject to 50%
HST if all units are used as residential.
26. B. The Ontario Brownfields Statutes Law Amendment Act provides for identification, clean-
up and revitalization of abandoned or contaminated lands. This law simplifies the
MiniCram Notes 132

redevelopment process by amendments in the Municipal Act and the Planning Act. The law also
provides certain protection to buyers/developers against future environmental liability.
27. D. Non-resident sellers must pay Capital Gains Tax on sale of real property in Canada. If the
seller fails to pay the Capital Gains Tax, the buyer becomes responsible.
The Residency clause in the Agreement of Purchase and Sale-Commercial has three options
for the protection of the buyer. The seller may provide a certificate from Minister of National
Revenue after paying necessary Capital Gains Tax, credit the buyer for the amount of tax
payable or provide a statutory declaration that the seller is not a non-resident.
28. A. The undepreciated capital cost of an asset is the cost of the asset less any capital cost
allowance already claimed. There are several methods for calculation of capital cost allowance.
Further, the allowance varies with the class of asset, as provided by Canada Revenue Agency.
Recapture of capital cost allowance occurs only if the value of certain improvement is
maintained or has increased since acquisition. The half year rule does not state that 50% capital
cost allowance is applied if the asset is purchased after July 1st. Instead, the half year rule
states that only 50% of the cost is used for capital cost allowance calculation during the year of
purchase. The declining balance method of calculation applies to most assets but certain assets
such as leasehold improvements use the straight-line method.
29. A. An application for expansion of a legal non-conforming use is considered by a

municipality from several aspects. Three major factors are considered- (i) significant departure
from existing use, (ii) level of intensification for the local area (impact on adjacent owners), and
(ii) interests of the community.
30. C. Real estate registrants can reduce their liability by making sure that an up-to-date survey
of the property is obtained from the sellers. Not doing that or relying on an outdated survey is
not recommended because the old survey may not show recently created easements.
Other options correctly state how a registrant can reduce his/her errors and omissions risk.
31. D. Only statements 3 and 5 are correct. Location of a nearby medical waste plant might
have contaminated the land and attached a stigma to the subject property. Stigma is a material
fact and must be disclosed when listing and selling the property. Even when the contamination
is removed, the stigma remains attached to the property and negatively affects its value.
Further, it takes a long time to sell such a stigmatized property. Phase 1 audit involves visual
inspection but does not involve any tests. Phase 2 audit involves sampling and testing but the
remedial action is completed in phase 3.
32. C. As per pre-printed wording of the Residency clause in the Agreement of Purchase and
Sale - Commercial, the non-resident seller has these options – (i) pay the capital gains tax in
advance and deliver a certificate from Minister of National Revenue to the buyer, or (ii) credit the
buyer for the amount of the capital gains tax, or (iii) provide a declaration that he is not a non-
resident.
MiniCram Notes 133

It is incorrect that every seller must pay Capital Gains Tax or that the buyer of property from a
non-resident seller must get credit from the seller. There is no such requirement that every
seller must provide a declaration that he is not a non-resident.
33. C. Open house is one of the several prospecting techniques. The salesperson permits
potential buyers to view the property without the need to make an appointment and also gets a
chance to meet new prospects. In addition to this, the seller is convinced that the salesperson is
making a sincere effort to sell the property.
34. B. Writing on someone's Facebook wall, Twitter posts and blogs are some examples of
exceptions under Canada's Anti-Spam Legislation (CASL).
Other methods of unsolicited electronic messages for promoting services or products may be
under CASL.
35. D. 26,000 Square Feet.

Building Size = Gross Lot Area X Floor Area Ratio
= 8000 X 3.25 = 26,000 Square Feet
36. B. $19.23
Total Land Cost = 335,000 X 1.8 = $603,000
Total Area = 1.8 X 43,560 = 78,408 Square Feet
Buildable Land Area = 78,408 X 40% = 31,363 Square Feet
Buildable Land Cost Per Square Foot = 603,000 ÷ 31,363 = $19.23
37. D. 8.46%; 11.39%

Equity = 1,250,000 ― 900,000 = $350,000
Annual Debt Service = 5,493.52 X 12 = $65,922.24
Cash Flow = 105,800 ― 65,922.24 = $39,877.76
Overall Rate of Return = 105,800 ÷ 1,250,000 X 100 = 8.46%
Equity Return = 39,877.76 ÷ 350,000 X 100 = 11.39%
►Tip: Ignore the interest rate and amortization when the monthly mortgage payment is given.
38. C. 2.25
Gross Profit Multiplier = 540,000 ÷ 240,000 = 2.25
►Tip: Ignore the List Price as well as the Operating Expenses.
39. D. $19,200
Undepreciated Capital Cost in the beginning of year 1= $24,000
Equal amount of CCA is claimed in each year.
CCA for each year = 24,000 X 10% = $2,400
MiniCram Notes 134

Undepreciated Capital Cost at end of 2 years

= 24,000 ― (2,400 X 2) = $19,200
40. B. $6,900; $27,120

Total Undepreciated Capital Cost (UCC) = 28,200 + 12,600 = $40,800
CCA on Previous UCC Amount = 28,200 X 20% = $5,640
CCA on New Purchase in 2013 = 12,600 X 10% = $1,260
CCA for Year 2012 = 5,640 + 1,260 = $6,900
Part II: Tax Year 2014

UCC as of Jan 1, 2014 = $33,900
CCA for 2013 = 33,900 X 20% = $6,780
►Tip: Ignore the date of purchase because this is an existing business.
41. B. The purpose of including the Expense Stop clause in a commercial lease is to set the
maximum amount of concessions the landlord will give to the tenant for leasehold
improvements.
It is not correct that the Expense Stop clause limits the amount a tenant is permitted to spend
for improvements. The provisions for removal of fixtures are not in the Expense Stop clause.
This clause also does not specify the minimum amount the tenant is required to spend on
improvements.
42. B. Only statements 2 and 5 are correct. The ‘Deferment of Opening’ clause states that the
tenant must open his store for business on the official opening date of the shopping centre.
Also, the landlord will not be liable for any damages in case the official opening date is deferred
for some reason.
Other statements are incorrect. The clause mentions that the tenant may be liable to the
landlord if he fails to open the store on the official opening date. If the official opening date is
deferred by the landlord, the tenant’s lease will not start until the new opening date.
43. C. $25,064.25
Additional Rent = 438,800 ÷ 37,465 X 2,140 = $25,064.25
MiniCram Notes 135

►Tip: Ignore the per square foot Base Minimum Rent of $10.50 because the question does not
ask about total Base Minimum Rent. Also, there is no need to calculate the R/U Factor.
44. B. $17.96
5.75% of Gross Sales = 850,000 X 6% = $51,000
►Tip: Ignore the Common Area Maintenance (CAM) and the Total Rentable Area of the mall
because the question does not ask about Additional Rent.
45. A. The rent in Westgate Mall - $19.26 per Square Foot is economical. The rent in Eastgate
Mall is $20.59 per Square Foot.
Eastgate Mall
Calculate Concessions
Rent Payable in First Year = 55,964 – 2,631 – 10,000 = $43,333
Westgate Mall
Calculate Concessions
Rent Payable in First Year = 51,963 – 3,460 – 7,000 = $41,503
46. B. The advertisement does not clarify exactly what is meant by ‘net’ amount. The buyer
must be concerned whether this amount is gross before expenses or net after expenses.
Ideally, the buyer should seek more clarification by requesting the seller to provide financial
statements of the business.
47. D. The buyer must demand copies of equipment lease contracts to know his obligations
under these contracts. Some other concerns for the buyer include, but not limited to, amount of
lease, lease expiry, renewal terms, maintenance of equipment, service timings, etc.
MiniCram Notes 136

48. B. $147,655
Calculate Weighted Average of Profits
39,300 X 1 = 39,300
35,550 X 2 = 71,100
32,400 X 3 = 97,200
27,280 X 4 = 109,120
25,250 X 5 = 126,250
Weighted Average = (39,300 + 71,100 + 97,200 + 109,120 + 126,250) ÷ 15 = $29,531
Estimate of Value = 29,531 ÷ 0.20 = $147,655.
49. B. Only statement 3 is correct. The mortgage financing condition may be written as a
‘condition precedent’ or as a ‘condition subsequent’. The given format is precedent, and this
format typically includes a waiver provision for the benefit of the buyer.
It is not necessary that the condition be written in subsequent format. A condition precedent for
mortgage financing need not include the amount of the loan or the name of lender. It is not
unlawful to write the word ‘satisfactory’ instead of actual mortgage loan.
50. B. Only statements 2 and 4 are correct. The clause should mention the 12-month period for
which the profit and loss statements are provided. For example, the clause should specify the
period such as ‘period ending December 31, 20xx’. Furthermore, there is no mention of
statement of assets and liabilities of the business, which is a requirement under REBBA 2002.
It is not necessary that the clause must be written as a condition. The financial statements need
not be provided in the form of a statutory declaration. These are typically prepared by seller’s
accountant. There is no problem in including an acknowledgement that the seller has received
and reviewed a copy of the lease.
---------------------
Back to Sample Exam 1 Back to Table of Contents
MiniCram Notes 137

DETAILED ANSWERS
SAMPLE EXAM 2
1. C. Lifestyle centers typically provide for an open-air shopping experience rather than some
enclosed shopping mall. They have tree-lines streets, on-street parking, boutique
merchandisers, entertainment facilities, fashionable restaurants, and even business offices.
Lifestyle shopping centers are different than enclosed shopping centres because enclosed
shopping centres do not have open-air facilities that are typically found in lifestyle centres. It is
also incorrect that lifestyle centres do not include business offices or the initial investment for
the developer is huge.
2. A. It is incorrect that Class C buildings are always more than 30 years old or they must be
renovated before being leased. In general, the classification criteria is that these buildings are
typically more than 20 years old and may need extensive renovation.
Other statements regarding building classifications are correct.
3. B. Large industrial users typically do not ignore characteristics of the community. This is
particularly true for labour intensive industries which must study community profile to ensure
that labour force is available.
Other statements with respect to industrial real estate are correct.
4. A. It is incorrect that centre-core designs in multi-storey office buildings are better suited for
larger tenants. These designs are, in fact, better suited for buildings where multiple tenants
would need office space.
Other statements regarding centre-core and side-core are correct.
5. C. Steel construction is preferred for most industrial structures because steel provides
strength as well as flexibility to the structure during high winds. Most modern small and medium-
sized buildings use a combination of concrete and pre-engineered steel.
It is incorrect that steel structures are expensive. They are, in fact, inexpensive as compared to
complete concrete structures. All industrial buildings are not built as general-purpose buildings
and it is not easy to alter the design for heavy industrial uses once the construction is complete.
Most industrial structural designs consider bay depth, clear height, clear span and many other
aspects for a variety of light and heavy industrial uses.
6. B. A Land Development Agreement is typically required by municipality as a condition for

amendment of zoning for a specific property is the application is approved.
Other given situations do not require the developer to sign a land development agreement with
the municipality. There may be other zoning requirements for these projects.
7. B. Although every individual investor in a joint venture has undivided interest in the project, it
is not necessary that they are issued equal shares. The shares are proportionate to their
investment.
MiniCram Notes 138

Other statements are correct. In a partnership, all partners have personal liability for the
business and there is no legal separation. A corporation is a legal entity separate from its
shareholders. In certain situations, personal liability of shareholders may be attached. A Real
Estate Investment Trust (REIT) may be involved in only financing of real estate projects or
ownership of real estate or both.
8. C. A site plan is typically attached to the lease to specify location of the unit, its size and
boundaries.
Other options do not describe the correct information or purpose of a site plan.
9. B. The Rentable Area of a unit is typically used for calculating rent for a particular tenant. This
is calculated by multiplying the Usable Area of the tenant with the applicable R/U factor of the
shopping centre.
10. C. The Commercial Tenancies Act does not mandate approval of all subtenants by the
landlord. The landlord may have a provision in the head lease that he must approve the
subtenant before the sublease between the tenant and subtenant becomes binding.
Other statements with respect to subtenancy of a commercial retail unit are correct.
11. A. If a commercial tenant files for bankruptcy, the indemnifier for the tenant may still be held
responsible for lease obligations. The scope of liability for a guarantor is limited because if the
tenant files for bankruptcy, the guarantor’s liability also comes to an end.
The Commercial Tenancies Act does not require the landlord to pay interest on security deposit.
The Continuous Use clause is typically included in most commercial leases because the
landlord does not want to create a dark space in the shopping centre. This Act also does not
prohibit the landlord from collecting advance tax payments from tenants.
12. C. If a property owner does not agree with the assessment value, he may either file a
Request for Reconsideration or may directly file an appeal with the Assessment Review Board.
The Ontario Municipal Board and the local Committee of Adjustment are not involved in tax
related matters.
13. C. Due diligence in a typical commercial real estate transaction involves inspection of
various financial, legal, structural and environmental documents related to the property. The
buyer needs to ensure that he will not be held liable for any problems after the closing.
It is incorrect that due diligence is needed only for vacant industrial land and not for buildings.
Due diligence for a specific property may include environmental audit because of imputed costs
involved in any future liability due to existing environmental hazards.
14. B. A hydrogeological report is typically required as part of the zoning amendment application
when a community or private septic system is needed.
It is incorrect that amendment to Official Plan always involves conditions to be fulfilled.

Consultations with municipal planning officials are required but this does not waive the
MiniCram Notes 139

requirements under the Planning Act. It is incorrect that no public agency can raise any issue
after approval of the developer’s plan.
15. D. A multi-residential apartment building is a commercial property. The buyers would most
likely demand confidential financial information from the sellers which is typically not a part of
agreement for a single family residential agreement. The buyers need to be satisfied with
financial, legal and operational aspects of the property.
Since single family homes are residential properties, the same agreement cannot be used for
multi-residential properties. A list of appliances must be provided to the buyer because these
items are typically owned by the owners and not by tenants. A home inspection clause is not
adequate to inspect the structural integrity of a multi-residential building.
16. B. A confidentiality agreement may be signed by the buyer to convince the seller that the
financial statements of the property would not be disclosed to any third parties.
A statutory declaration is not required in this situation and verbal assurances are not
recommended in real estate. An assurance from the co-operating brokerage that the buyer
would sign a binding agreement is not advisable because the buyer may refuse to buy the
property after review of the financial statements.
17. B. Only statements 1 and 3 are correct.
A sale/leaseback arrangement is a good option for owners when they want to free up their
equity in a commercial property but do not want to relocate their business to another location.
The owner may sell the property to an investor and enter into a long-term lease of the same
property. It is beneficial for both the seller and the investor because the objectives of both
parties are met with this arrangement.
18. B. Analysis of investment real estate includes both the operations cash flow as well as the
sale proceeds cash flow.
Operations cash flow refers to periodic monies received from operation of the commercial
property during the period of ownership. It is incorrect that the after-tax cash flow is not
important. In fact, most analysts prefer after tax cash flow because this provides a better picture
of the return on investment. Leverage is also an important aspect of analysis.
19. A. Only statements 2 and 5 are correct. In a Design/Build arrangement, the landlord builds a
structure based on specific requirements or design provided by a long-term tenant. Design/build
arrangements are popular when the demand for commercial leasing space is high and available
industrial space is low.
It is incorrect that developers do not take much interest in design/build options because such
arrangements reduce their return on investment. A design/build arrangement is different from a
sale/leaseback arrangement. Commercial tenants also analyze market data before entering into
any commercial tenancy agreement.
20. D. Only statements 1, 3 and 4 are correct. In order to receive tax reduction, the farming
business must meet certain qualifying criteria as given in these statements.
MiniCram Notes 140

It is incorrect that all farming businesses receive at least 50% tax reduction. Also, if not wholly
owned by a Canadian citizen or permanent resident, at least 50% of voting shares of the
business must be held by a Canadian citizen or a permanent resident.
21. D. Only statements 1 and 4 are correct. A sale/leaseback agreement is beneficial to both the
seller and the buyer. It allows the seller to sell his property to an investor and lease it back on a
long term to retain the location. The seller can free up his equity in the property to make
investment in other projects while the buyer, as investor, gets a long-term tenant.
It is incorrect that the seller always includes an ‘option to purchase’ clause to buy the property
back after expiry of the lease term. A sale/leaseback agreement must not be confused with
‘tenant’s first right of refusal’ in lease agreements. It is also not correct that sale/leaseback is
popular when the building is in poor condition.
22. C. Investment in commercial real estate has certain advantages. One such example is that
the investor can grow the invested capital by refinancing of the property after many years of
ownership when sufficient equity has been built up.
It is incorrect that commercial properties always have lower property taxes than residential
properties. Lenders require higher down payment (initial investment) when providing loans for
commercial properties. Liquidation refers to the ease by which assets can be converted to cash
and it is incorrect that a commercial property can be sold and liquidated quickly. It takes time to
sell a commercial property.
23. D. Only statements 2, 3 and 4 are correct. Franchise businesses have both advantages and
disadvantages. The franchisor typically provides training to the owners and staff; and may help
in reducing the cost of goods due to its bulk purchasing power. Later, the value of the business
may increase because of the franchise arrangement.
It is incorrect that the on-going costs and fees are not significant, or the owner is always free to
sell the business without the consent of the franchisor.
24. B. A commercial tenant is not permitted under the Commercial Tenancies Act to withhold
rent if the landlord fails to fulfill obligations under the lease contract.
Other statements are correct. Upon default in rent payment, the landlord may change the locks
of the unit 15 days after the rent became due. Both the landlord and the tenant may approach
Superior Court of Justice in case of a dispute. The landlord is permitted to seize and dispose of
tenant’s property to recover rent payments, subject to certain conditions.
25. B. Under the provisions of the Commercial Tenancies Act, if the lease is for a fixed term, the
tenant must vacate the premises on the last day of lease term, unless the lease is renewed.
The landlord must honour lease obligations and cannot unreasonably give 30 days’ termination
notice to the tenant. It is also incorrect that the landlord must wait until end of lease term to give
termination notice. An overholding tenant who continues to occupy the premises after the expiry
of the lease may be liable for two months of rent every month. It is incorrect that the tenant must
pay two months’ rent as security deposit.
MiniCram Notes 141

26. C. The Agreement to Lease - Commercial sets out the fundamental material aspects of the
lease between the landlord and the tenant. If the parties agree, this form itself may constitute
the entire formal lease.
It is incorrect that the landlord cannot add more clauses in the formal lease. The landlord
typically adds many clauses appropriate to the commercial tenants in the final lease. The pre-
printed wording of the Agreement to Lease - Commercial does not make it mandatory that the
landlord and the tenant must execute a formal lease. In all cases, a commercial lease
agreement must be in compliance with the Commercial Tenancies Act.
27. A. The amount of income being reported is not one of the factors considered by the Tax
Court of Canada when deciding whether the gain is capital gain or regular business income.
Other options are correct regarding the factors considered by the Tax Court of Canada while
settling a capital gains related dispute.
28. A. The purpose of the Ontario Brownfields Statute Law Amendment is to encourage clean-
up and redevelopment of abandoned or contaminated lands. This law makes redevelopment
procedures easier by making certain amendments to the Municipal Act and the Planning Act.
This law does not require that every industrial land buyer completes the Record of Site
Conditions report. This report is required for redevelopment of brownfields only. This law also
does not waive the requirements of the Environmental Protection Act. The law encourages
municipalities to make the redevelopment process easier rather than making it strict.
29. D. Under the federal Bankruptcy and Insolvency Act, the Receivership option is valid only for
companies and not for individuals.
Other statements with respect to provisions of the Bankruptcy and Insolvency Act are correct.
30. C. A salesperson may be hired by a brokerage as an independent contractor or as an

employee. It may not be possible for an employee salesperson to decide or alter the
commission policies of the brokerage.
A salesperson working as independent contractor uses his own judgement and methods and
decides himself/herself what commission is charged from clients. The salesperson working as
an employee may not be able to work in the same manner.
31. C. The National Do Not Call List provides certain exemptions to real estate brokerages for
making calls to consumers when the brokerage has an existing business relationship with the
consumer. When a party has an existing or expired agreement with a brokerage, the brokerage
is deemed to have an existing business relationship with that consumer. In this case, the
brokerage is permitted to contact the consumer for up to 18 months of signing the agreement.
32. A. 2.6
Floor Area Ratio = Gross Floor Area ÷ Gross Lot Area
= 12,480 ÷ 4,800 = 2.6
MiniCram Notes 142

33. C. 12.88%
Land Cost = 3.5 X 275,000 = $962,500
Buildable Area = 3.5 X 43,560 X 35% = 53,361 Square Feet
Buildable Land Cost Per Square Foot
= 962,500 ÷ 53,361 = $18.04
Construction Costs = 14.55 + 43.95 + 12.75 = $71.25 per Square Foot
34. A. 8.51%
Part I: Calculate Annual Debt Service

Down Payment = 6,500,000 X 35% = $2,275,000
Mortgage Loan = 6,500,000 X 65% = $4,225,000
Annual Debt Service = 4,225,000 X 6.5% = $274,625
►Tip: For Interest Only mortgage, simply multiply the loan amount with interest rate to calculate
the annual debt service.
Part II: Calculate Net Operating Income

Operating Income = 1,150,000 – 4.5% + 29,800 = $1,128,050
Annual Expenses = 1,128,050 X 58.5% = $659,909
Net Income = 1,128,050 – 659,909 = $468,141
Part III: Calculate Cash Flow and Equity Return

Cash Flow = 468,141 – 274,625 = $193,516
Equity Return = 193,516 ÷ 2,275,000 X 100 = 8.51%
35. A. $132,210
Calculate Weightage Average of Profits

137,800 X 4 = $551,200
132,000 X 3 = $396,000
126,200 X 2 = $252,400
122,500 X 1 = $122,500
Add all these numbers = 1,322,100
Divide by 10 (4+3+2+1) = 1,322,100 ÷ 10 = 132,210
Weighted Average of Gross Profits = $132,210
MiniCram Notes 143

36. B. $795,000; $16.50

Percentage Rent is Not Applicable or is Zero.
►Tip: Percentage Rent is not payable if the Gross Sales do not exceed the Base Minimum sale
of $795,000. In this case, the Base Rent per square foot itself becomes the ‘Total of Base
Minimum and Percentage Rent’ per square foot.
37. C. $2,695.54
Total Rentable Space for calculation of property tax
= 240,000 ― 4,500 = 235,500
Proportionate share of Cram Cookies Inc.
= 276,000 ÷ 235,500 X 2,300 = $2,695.54
38. A. $21.96
Part I: Base Minimum Rent = 1,800 X 12.50 = $22,500

Percentage Rent = $6,750
Additional Rent = 1,800 X 15.50 = 27,900
Part II: Concessions

Part III: Rent Payable in First Year

= 57,150 – 5,625 – 12,000 = $39,525
39. C. $921,984
Improvement Allocation at the time of Purchase = $980,000
CCA for Year 1 = 980,000 X 2% = $19,600
Undepreciated Capital Cost of Improvements at the end of Year 1
= 980,000 – 19,600 = $960,400
CCA for Year 2 = 960,400 X 4% = $38,416
MiniCram Notes 144

Undepreciated Capital Cost of Improvements at the end of Year 2

= 960,400 – 38,416 = $921,984
►Tip: Land does not depreciate. CCA is calculated only on Building and Improvements. The
calculation is similar to Office Equipment and Furniture, only the CCA rate is different,
40. A. $265,877
Improvement Allocation at the Time of Purchase
= 2,440,000 X 65%
= $1,586,000
Improvement Allocation at the Time of Sale
= 3,280,000 X 60%
= $1,968,000
The entire CCA amount that has been claimed, i.e. $265,877 would be recaptured.
►Tip: The improvement allocation at the time of sale is greater than the allocation at the time of
purchase.
41. A. The Overholding clause states that when the lease term expires, the tenant would
become a month-to-month tenant. In this situation, the landlord may charge two months of rent
for every month of possession by the tenant. The clause also states that, even if this provision
takes effect, the tenant still has an obligation to deliver vacant possession of the unit after
expiry.
Other statements give incorrect interpretation of clause wording.
42. B. Under the Commercial Tenancies Act, if the tenant is in default of rent payments, the
landlord has the right to seize and dispose of tenant’s assets in order to recover his monies. But
the landlord cannot seize any asset that is not owned by the tenant. This is why the landlord
wants to ensure in the No Encumbrances clause that any fixtures or assets seized are not
subject to any prior claim.
It is incorrect that the landlord agrees to allow the tenant to pledge the value of the lease as
security for any future financing. The tenant also does not need landlord’s written consent to
purchase any fixtures or equipment. The clause does not transfer the ownership of any fixtures
or chattels to the landlord.
43. C. Buyer may buy only assets of the business, which include stock, assumption of lease and
the goodwill. In this case, the company/corporation is not purchased by the buyer.
A higher capitalization rate results in low value for the business and vice-versa. It is incorrect
that businesses are easier to finance. Even the government regulations do not permit a loan to
MiniCram Notes 145

value ratio (LTV) of more than 75%. It is the buyer (not the seller) who prefers earnout method
of financing. Earnout financing is based on actual performance of business after closing. It helps
the buyer decide the difference between seller’s asking price and what the buyer wants to pay.
44. D. The students answer is unacceptable because he did not describe that the buyer must
receive a list of items (fixtures, chattels, goods or other assets) which are not included in the
sale. If such a list is not provided, then all such items are deemed included in the sale. This
explanation makes other options incorrect.
45. A. In case the business being sold is a franchise business, it is not necessary that the
franchisor would demand the franchise fee again. The franchise fee is typically a one-time fee
and is already paid. It is incorrect to state that the franchisor would make the sale void if the
franchise fee is not paid again. Other statements provided by the salesperson are correct.
46. B. Most commercial sales and leases are subject to HST. When the words ‘In Addition to’
are inserted in the clause, HST becomes buyer’s responsibility, if it is applicable.
In the pre-printed wording of standard Agreement of Purchase and Sale – Commercial, there is
no option to insert ‘In Addition To’ or ‘Included In’. The words ‘In Addition to’ are pre-printed in
the agreement.
47. A. Fax numbers or email addresses are left blank in case of multiple representation. This is
clearly written in bold in the Notices clause.
Leaving the Notices clause blank is not a critical mistake and does not make the agreement null
and void. A Buyer Customer Service Agreement does not make the buyer a client of the
brokerage and is not represented. In the given scenario, the buyer is a client and it is a multiple
representation situation.
48. B. The condition inserted in the Schedule A is not written properly. There is no provision in
the clause that the assumption of mortgage loan is subject to approval by the lender and the
agreement would become null and void if the lender does not approve the buyer as mortgagor.
49. D. The Seller Take Back (STB) mortgage clause should contain a postponement provision
because the first mortgage becomes due before this second mortgage. When the first mortgage
becomes due the STB mortgage will jump to the first priority and the borrower may find it difficult
to renew or refinance. The postponement clause permits the borrower to renew or refinance the
first mortgage by maintaining its priority.
50. B. $75,000
►Balance Due = Purchase Price – Seller Take Back – Assumed Mortgage – Deposits
= 370,000 – 120,000 – 150,000 – 25,000 = $75,000
---------------------
MiniCram Notes 146

DETAILED ANSWERS
SAMPLE EXAM 3
1. C. Clustering refers to a mix of tenants in a shopping centre do that most consumer needs
are fulfilled when the consumer visits the centre. This way, the consumer does not have to
make several trips to different shopping centres in order to make purchases.
Range refers to the maximum distance a consumer is willing to travel in order to buy a specific
product or service. Threshold refers to minimum population size required for support a business.
Competition refers to consumer’s tendency to go to the closest store if the required product or
service is available at a competitive price.
2. C. A Class C office building is typically located in a less desirable are as compared to Class A
and Class B buildings. They may be as older as 20 years or more, having older technology and
may need renovation before a tenant can move in. These buildings attract those tenants who
are looking for affordable space at low rents and who cannot afford office space in Class A or
Class B buildings.
3. B. Range is the maximum distance a consumer would travel in order to acquire a specific
product or service. This is an important aspect of analysis in commercial retail demand.
Other terms given in the options are not correct.
4. D. It is incorrect that single purpose buildings are popular only because the landlord gets a
long-term tenant. In fact, single purpose buildings are least popular because of their specific
design for one single use only. These buildings have little market appeal and are difficult to
lease or sell once the lease of the existing tenant expires. It is also very expensive to convert
the use of such buildings because of high imputed costs of conversion or demolition.
Other statements with respect to categories of industrial buildings are correct.
5. D. The investor of commercial real estate is mainly concerned with return on the invested
capital, and whether a particular property fulfils his/her overall investment objectives or not. The
primary analysis for the investment real estate focuses on return on investment.
Investors are rarely interested in decorative features, needs of staff or business equipment, or
the visibility of a specific investment property. This does not mean that an investor would
neglect all these aspects. However, the primary concern is return on investment.
6. C. When the business has marginal earning potential (little or negative profits), the valuation
is typically based on adjusted book value of assets.
When gross profits vary significantly in recent years, the weighted average method is typically
used for evaluation or for negotiations. The discounted cash flow method is not used for a
business in leased premises but for a business in an owned premises. This method is best
suited when both the business and real estate are being sold. It is incorrect that the direct
method of capitalization is used only for rental apartment buildings and not for evaluation of
businesses.
MiniCram Notes 147

7. D. In all types of farm land lease agreements, the landlord retains the ownership of land
(landlord is supplier of land) and is responsible for the property tax payments.
The cash crop lease authorizes the landlord to one-third of crop sales while the tenant keeps
two-thirds. In cash rent lease, the landlord gets a fixed amount of rent for the land and typically,
half rent payment is done in advance. In flexible cash lease, the rent paid by the tenant is based
on either the price of the crop, the yield on the crop or a combination thereof.
8. B. The formal lease prepared by a landlord or landlord’s solicitor is known as settled form of
lease. This lease must include all the fundamental terms of lease earlier agreed in the
Agreement to Lease - Commercial form.
The provisions under Statute of Frauds are for all commercial leases and not only for those
where the lease term exceeds 3 years. This Act states that a lease of less than 3 years need
not be in writing. When a percentage rent clause is included in a retail lease, the landlord may
charge differing percentages from different tenants, based on their annual gross sales.
Landlords typically do not rely only on estimated gross sales given by tenants but may have
strict provisions for monitoring the actual gross sales.
9. B. A commercial landlord should ensure that any assignment or subletting of the premises is
with prior written consent of the landlord. In addition to this, the landlord should keep a provision
that he can refuse assignment or subletting on reasonable grounds.
It is incorrect that the landlord must never permit assignment or subletting. The lease should not
automatically terminate when such a request is made. Also, the landlord should ensure that the
tenant does not receive rents higher than what he is paying to the landlord.
10. D. The phase 1 of Environmental Audit involves inspection of the property and review of
documents. These documents may include ministry records, previous audit reports, registry
information, etc.
Other statements are correct. The scope of environmental contamination is determined from soil
water sampling and testing, which is done in phase 2 of the Environmental Audit. It is incorrect
that every buyer needs to get a phase 1 audit report for any real estate transaction if he needs
mortgage financing. Obtaining Environmental Insurance does not mean that environmental audit
is not required.
11. B. The Half-Year Rule for calculation of capital cost allowance applies to most capital assets
and this includes real estate. As per this rule, only 50% of the cost of assets is considered for
calculation of capital cost allowance in the year of purchase.
In case of a new corporation, the 50% rule applies to all new capital assets, but the days are
prorated. Land and building do not necessarily have 50/50 allocation when calculating the
capital cost allowance. The Canada Revenue Agency (not the taxpayer) provides guidelines as
to what method is to be used for calculations.
12. B. An easement is a right given by a land owner to another land owner for a specific
purpose rather than for general use. Once this right is granted, it is registered on the title of both
properties.
MiniCram Notes 148

A registered easement runs with land and binds subsequent owners. An easement has a
different purpose from a Private Limitation or a Deed Restriction.
13. C. Clear span is the floor area, clear of any interference, between columns and supporting
walls of an industrial building.
It is incorrect that pre-engineered industrial buildings are not popular due to their cost. Live load
refers to the ability of the floor to support not only the structural components but also loads of
people and equipment. The ability to support just the structural components is referred to as
'dead load'. Warehouses are not typically divided into segments.
14. C. When looking for a warehousing facility, distributors mainly focus their attention on
transportation corridors, time and distance factors, and freight rates. This is because the
demand for industrial buildings is driven by specific functions of the buyer.
Other options are incorrect. Manufacturers concentrate on distance to raw materials, availability
of energy for manufacturing and availability/cost of labour. Market based industries look for
closer customer base.
15. D. The Agreement of Purchase and Sale for a multi-residential rental apartment building
would include a requirement that the seller would provide details of all leases to the buyer. This
is typically in addition to the standard clauses for providing financial statements. The buyer
needs to satisfy himself with respect to compliance of the seller with the Residential Tenancies
Act, provision for transfer of leases to the buyer and deposits they have paid.
It is incorrect that the Commercial Tenancies Act applies to multi-residential buildings. The
responsibility to notify tenants about change in ownership lies with the seller, not the buyer.
Under REBBA 2002, these buildings are considered a business for the purpose of sale.
16. A. The Commercial Tenancies Act regulates the landlord and tenant relationships for
commercial buildings. It is incorrect that this Act impacts sale of a multi-residential apartment
building.
Other factors mentioned in the given options may impact the marketing or sale of a multi-
residential apartment building.
17. C. An investor interested in purchasing a rental apartment building would typically want to
include a requirement in the Agreement of Purchase and Sale that the seller increases rents
before the completion date subject to provisions of the Residential Tenancies Act. This would
ensure that the return on his investment is higher, which would reduce risk to his investment.
Stability of interest rates is not an example of risk factor. Risk assessment does not merely
consider yield analysis; there may be other factors as well. It is incorrect that increased risk
results in higher return. When risk increases, the return tends to decrease.
18. B. If the business is operating from leased premises; the remaining term of the lease and its
renewal privilege is a main concern. This is because the location is extremely important for
successful operation. If the lease is not renewable or if the landlord does not agree to renew the
lease, relocation may cause unexpected losses to the buyer.
MiniCram Notes 149

Other statements are incorrect. Businesses are harder to finance as compared to residential
properties. The Earnout method of financing is better for the buyer and not the seller. REBBA
2002 requirements for sale of business are applicable when a real estate brokerage is involved
in the sale.
19. A. Most commercial landlords ensure that the tenant seeks prior consent before assigning
the lease or subletting the premises. In the absence of such a clause in the lease, the tenant
may assign or sublet without the consent of the landlord.
It is incorrect that in case of assignment, the original tenant remains liable during the entire term
of the lease and landlords prefer assignment over subletting. The original tenant may be
released, if the landlord elects to do so. However, in subletting, the tenant remains liable for the
entire term of the lease. The common law does not prevent the tenant from assigning the lease
or subletting the premises, but the landlord may insert a consent clause.
20. D. The percentage rent is based on gross sales of the tenant. This is why the landlord needs
to know the annual gross sales of the tenant. In a typical retail lease, the Gross Sales Defined
section describes the expected gross sales from a particular type of store.
Other options are incorrect reasons why the landlord needs to know the gross sales of the
tenant.
21. B. The 'Rent Free' provision in a typical commercial lease provides a concession to the
tenant in the beginning of the lease. But during the rent-free period the tenant may still have to
pay the additional rent as given in the lease.
When the demand for retail space is high, the landlords may not be willing to give a rent-free
period. Rent free period is in the beginning of the lease term and not at the end. The
Commercial Tenancies Act does not require the landlords to give three months’ rent-free period.
This concession is a discretion of the landlord when they want to attract tenants to the shopping
centre.
22. B. The 'rentable area' of a tenant is the actual floor area plus his proportionate share of
common elements of the complex. This is calculated by multiplying the 'usable area' with the
applicable R/U factor of the building.
Accordingly, the usable area is the actual floor area of the tenant's unit. The terms 'rentable
area' and 'gross floor area' of all buildings are not synonymous. Gross floor area refers to the
total area of the building based on external measurements, excluding any unenclosed areas
such as parking spaces.
23. A. The Ontario Brownfields Statute Law Amendment Act encourages municipalities to
recognize and redevelop abandoned or contaminated land within their jurisdiction.
It is incorrect that this Act discourages municipalities redeveloping abandoned land or reduces
their assessment base by decreasing the value of such lands. This Act does not make the
municipalities, lenders and developers accountable if they are involved in development of such
lands. The Act, in fact, encourages them to redevelop such land and includes several provisions
to make the redevelopment process easy and to avoid future environmental liability.
MiniCram Notes 150

24. B. The municipality is required to notify a mortgagee in case the owner has not paid the
property tax. The mortgagee, in turn, has the right to prevent the municipal tax sale by paying
off the Cancellation Price given in the Tax Arrears Certificate.
It is incorrect that the municipality cannot sell the property for more value than given in the Tax
Arrears Certificate. The purpose of this certificate is not to set the value of the property but to
specify the tax amount which is in arrears. It is not mandatory for the municipality to hire a
registered real estate brokerage for the sale because these sales are typically conducted by
auction or by public tender. The municipality cannot proceed with possession and sale if only
one year's taxes are in arrears.
25. C. If a non-conforming commercial property needs to be enlarged, appropriate permits from

the municipality are typically required.
Non-conformity is usually created when a specific use of the property existed before the passing
of a new zoning by-law which makes that use illegal. It is not correct that non-conformity occurs
only in commercial areas and not in residential. If the status of the property is a 'legal non-
conforming', it does not become illegal when the property is sold. This status remains as such.
26. B. Real estate registrants need to be aware of visual clues of contamination. Even though a
parcel of land does not have any visual clues of contamination, chances of contamination still
exist because seepage of contaminants may be occurring underground from an adjacent
property.
It is incorrect that the main source of contamination occurs only due to above ground storage
containers. Owners of contaminated land are not only liable for their own land but may be liable
to adjacent lands also if the contaminants are flowing to their land.
27. A. Registrants have an obligation of providing competent and conscientious service to their
clients. The salesperson should have enquired about any such appliances or items that are not
owned by the seller but belong to their suppliers.
It is incorrect that the salesperson has limited duties towards her buyer client only because this
was the first time she sold a business. Salespersons must exercise due diligence and it is not a
valid excuse that the buyers should themselves be aware of such matters.
28. A. In a Limited Partnership, there are at least two partners; a general partner and a limited
partner. The general partner manages the business operation and has unlimited liability while
the limited partner is a passive investor whose liability is limited to the amount invested and
profits shared.
This explanation makes other options incorrect.
29. D. It is incorrect that the confidentiality agreement prohibits the brokerage to disclose any
information that is generally known in the marketplace.
The purpose of the confidentiality agreement is, in fact, not to disclose the client’s business
information without prior consent. If the information provided by the seller is commonly known,
there is no reason to keep it confidential.
MiniCram Notes 151

30. C. The pre-printed wording gives several options to a non-resident seller for payment of
Capital Gains Tax. The seller can either pay the tax in advance and deliver a certificate from the
Ministry or a credit can be given to the buyer for such amount. Otherwise, a statutory
declaration must be provided to the buyer stating that the seller is not a non-resident.
Other options are not entirely correct. Please pay attention to the absolute word ‘must’ in these
statements.
31. D. When a salesperson is working as an independent contractor with a real estate

brokerage, he is himself responsible for personal taxation matters.
The brokerage does not make any tax deductions from the commission payments. However, the
brokerage is responsible for the conduct of the independent contractor salesperson for
compliance with REBBA 2002 regulations.
32. B. The federal telemarketing regulations are equally applicable to all businesses, including
real estate registrants. It does not matter whether the registrant is involved in residential trading
or commercial trading.
It is advisable that a registrant is well prepared for handling queries on the commercial property
that he/she has listed. Providing accurate information is an ethical duty of the registrant. When
listing a commercial property, the registrant must get information on contracts of the seller with
utility and property management companies because the buyers are typically interested to get
related information. New registrants should focus on smaller commercial projects in the
beginning and not on larger projects.
33. D. 9,000 Square Feet

Gross Floor Area = 3,600 X 2.5 = 9,000 Square Feet.
34. C. 12.75%
Land Cost = 5 X 245,000 = $1,225,000
Buildable Area = 5 X 43,560 X 40% = 87,120 Square Feet
Buildable Land Cost = 1,225,000 ÷ 87,120 = $14.06 per Square Foot
Construction Costs = 10.50 + 37.95 + 12 = $60.45 per Square Foot
35. A. $940,166.75 rounded to $940,000.

Gross Margin = 680,000 ― 402,460 = $277,540
Net Profit = 277,540 ― 32.25% = $188,033.35
Value = 188,033.35 ÷ 20% = $940,166.75
Rounded to $940,000
MiniCram Notes 152

36. B. 2,282 Square Feet

R/U Factor = 128,000 ÷ 110,500 = 1.15837
►Tip: When calculating R/U Factor, use at least 4 or 5 decimal places for accuracy.
37. D. $29,232.54
Additional Rent = 856,700 ÷ 68,870 X 2,350 = $29,232.54
►Note: Take the Usable Area as it is known for both the tenant and the shopping centre. Do
not calculate the R/U factor or tenant’s rentable area because it is not required for this question.
38. A. $29,700; $540,000; $8,800

Rent Payable in the First Year = $38,500
►Note: The total rent payable is the ‘Total of Base Minimum and Percentage Rent’.
Percentage Rent = 38,500 – 29,700 = $8,800
39. C. $167,750
Capital Gain = 1,350,000 – 950,000 – 64,500 = $335,500
Taxable Capital Gain = 335,500 X 50% = $167,750
►Tip: Ignore other amounts when the adjusted cost base is given.
40. B. $880,589.
Building Cost = 1,560,000 X 60% = $936,000
CCA for Year 1 = 936,000 X 2% = $18,720
UCC for End of Year 1 = $917,280
CCA for Year 2 = 917,280 X 4% = $36,691
►Tip: Quick Method

936,000 – 2% – 4% = $880,589.
41. D. The purpose of the Continuous Use clause is to ensure that the tenant occupies the
premises during the term of the lease, keeps adequate merchandise and fully staffs the
operation.
MiniCram Notes 153

If the tenant does not run the business from the leased premises but keeps on paying the rent, it
would create a dark space in the shopping centre. This puts the landlord in a difficult situation
because the missing tenant may be an anchor tenant. When an anchor tenant is missing, other
tenants would not be attracted to the shopping centre.
42. D. Only statements 3 and 5 are correct. The wording of the Intent of Lease clause provides
that the tenant shall bear all expenses for operation of the shopping centre according to his
proportionate share of common areas. The tenant, however, shall not be responsible for
personal income tax or the financing costs of the landlord.
Other statements give incorrect interpretation of the clause wording.
43. B. $203,740
Average of Gross Profits = 146,693 ÷ 4 = 36,673.25
Value = 36,673.25 ÷ 18% = $203,740
►Tip: Watch Out. Option C is ‘$230,740’. Seems to be a similar number.
44. D. $223,662
Calculate Annual Profits as per Given Weightage
$47,619 X 4 = 190,476
$40,533 X 3 = 121,599
$31,975 X 2 = 63,950
$26,566 X 1 = 26,566
Weighted Average = (190,476 + 121,599 + 63,950 + 26,566) ÷ 10
= $402,591 ÷ 10 = $40,259.10
Value = 40,259.10 ÷ 18% = $223,662 (rounded)
45. A. When a business has marginal profits, the value may be estimated using the assets only.
The ‘goodwill’ may still have some value based on the length of time the business has been
operating from the location. When the rent of the leased premises is below market rent, the
goodwill of the business and the lease term may be included in evaluation.
When capitalization rate is high, the estimate of value is low. It is incorrect that financing a
business is easier than financing a residential property. Buyers, and not sellers, prefer the
Earnout method of financing because the buyers can figure out the difference between the
asking price and what they are prepared to offer.
46. A. In the given situation, the salesperson may insert ‘As Otherwise Specified in this
Agreement’ in the Deposit clause and add appropriate clause in the schedule to state when the
deposit would be given. This is one of the three options in the Deposit clause; the other two
being ‘Herewith’ and ‘Upon Acceptance’.
MiniCram Notes 154

The salesperson should not give any advice to the buyer to convinces him that delays in giving
the deposit is common and that he need not worry. The REBBA 2002 requirement to put the
deposit amount in a Real Estate Trust Account is for the listing brokerage and should not be
confused with the buyer’s agreement to pay the deposit within 24 hours of acceptance.
47. B. A confidentiality clause is appropriate when the buyer demands financial statements of
the property and the seller has some concerns. This clause ensures that the buyer will not
disclose the information to any third party without the prior written consent of the seller.
Typically, the sellers provide financial statements after the agreement is accepted. It is
inappropriate for the buyer to demand these statements even before the offer is accepted. A
‘Pro Forma Statement’ has a different purpose and is typically prepared by the brokerage to
show the expected cash flows to a prospective buyer.
48. D. Only statements 1 and 4 are correct. The deposit is typically kept by the listing brokerage
in its Real Estate Trust Account until completion or other termination of the agreement. REBBA
2002 requires a disclosure of interest on trust funds, if any. This interest must be paid to the
person to whom the funds belong, unless otherwise stated in the agreement.
Other statements are incorrect. The brokerage need not provide statutory declaration regarding
deposit funds; this is taken care of by conditions. Since the seller does not keep the deposit, the
seller does not have to pay any interest. A clause in the agreement for withholding 10% deposit
as penalty is not advisable.
49. D. The last party to accept all terms of the offer or a counter offer signs the Confirmation of
Acceptance. If the seller accepts the original offer without any amendments, the seller signs it. If
the buyer accepts the counter offer, the buyer signs it. In this scenario, the buyer signs the
Confirmation of Acceptance because this is the last party to accept terms of the offer.
It is incorrect that that only the seller has the right to sign confirmation, being the owner of
property or the buyer signs it at the time of making the offer. Also, the seller does not sign
Confirmation of Acceptance at the time of making amendments.
50. C. $820,000
Balance Due Upon Completion
= 1,160,000 – 40,000 – 300,000
= $820,000
►Tip: Do not subtract the amount of ‘New’ First Mortgage.
---------------------
MiniCram Notes 155

DETAILED ANSWERS
SAMPLE EXAM 4
1. D. ‘Net Absorption Rate’ refers to the total available space less the office space vacated during
a given period of time. This is preferred by commercial market analysts over other key indicators
of office market.
The ratio of unleased office space to total available space is known as ‘Vacancy Rate’. Other
terms do not relate to absorption rate.
2. B. One of the attractions of ‘power centres’ in retail sector is that several big box stores are
located in the same complex.
It is incorrect that every retail business needs to be located in a power centre or that power
centres should be located in downtown core areas. They may be located at any suitable place in
the town or even in suburban areas.
3. D. Investors typically look for properties with positive cash flow. But, this may not always
occur as the market is dynamic. Negative cash flows may be tolerated by an investor when he
believes that property values are on the rise and, in the long run, he would realize a profit.
4. C. Market risk from the perspective of an investor is associated with ups and downs in the
real estate market, which is volatile.
Deterioration of building or some major structural problem in the building is known as building
risk. Uncertainty in overall investment climate is known as business risk. Inflation results in
decreasing purchasing power of dollar and this is known as financial risk.
5. D. The seller does not necessarily have to provide an affidavit with respect to various matters
related to the business. The Sale of Business Affidavit is required only when the seller does not
provide financial statements to the buyer.
Other statements correctly describe the documents that must be provided to the buyer before a
binding agreement takes place.
6. D. The ‘gross up factor’ is the difference between the rentable area and the usable area of a
unit. This factor may increase the rent obligations for a tenant.
The ‘efficiency factor’ for a commercial building refers to the relationship between the total
rentable area and the total usable area. It is expressed as R/U Factor. The R/U Factor and the
gross up factor are not synonymous terms. The rent-free period given to a specific tenant is
typically calculated on base rent and not the total annual rent.
7. B. A commercial lease must have a definite term, otherwise the lease cannot be enforced.
This means that the lease must include the date of commencement and the date of expiry.
There is no such requirement that the lease must be prepared under the Short Form of Leases
Act. A lease can have any definite term, but it need not be for minimum 3 years. A lease may or
may not have a table of contents for the clauses included in the document.
MiniCram Notes 156

8. C. Subtenants typically study the head lease between the tenant and the landlord. If the terms
are not acceptable to the subtenant, he has the right to cancel the sublease.
Other options with respect to commercial leasing are incorrect. Most commercial lease
agreements include a provision that if the tenant subleases the premises, the subtenant would
have a privity of contract with the landlord.
9. B. In a ‘Double Net’ lease, the tenant pays a proportionate share of property taxes and
expenses for minor repairs.
When the lease contains a provision that the tenant also pays proportionate share of major
repairs related to the structure, the lease is known as ‘Triple Net Lease’.
10. D. The Consumer Reporting Act refers to a consumer as someone who is not involved in
business activity. In the standard Agreement to Lease - Commercial, the Consumer Report clause
is not included because the tenant would be involved in a business operation from the leased
premises.
The Family Law Act applies to both residential and commercial properties owned by the family
when calculation of net family property is done. It is incorrect that the agreements for sale and
lease are prepared by the buyer brokerage.
11. B. If the land was never used before it is sold, it does not necessarily mean that
environmental hazards exist on the land. Thus, the seller does not have to disclose this to
potential buyers.
Other options point to a situation where land may be contaminated by hazardous materials.
These must be disclosed to potential buyers when selling the land.
12. C. Zoning by-laws typically set out the maximum coverage of the land for building the
structure, which is typically given as a percentage of gross lot area. This increases the cost of
land when considering the actual ‘buildable square foot’.
Soft costs and hard costs are a part of investment for the developer, may not be paid by the
tenant. Soft cost and development cost are not synonymous terms. In general, the developer’s
rate of return is certainly affected by the rental rates prevailing in the area.
13. D. The buyer of a multi-residential building might want to access financial statements of the
seller to ensure that that his investment would be safe. The salesperson may include a list of
selected financial statements that would be provided to the buyer. In addition to this, a
confidentiality clause may be included to convince the seller that the buyer would not disclose
this information to third parties without the prior written consent of the seller.
It is incorrect that apartment buildings are usually sold without providing financial information to
the buyer.
14. A. When the buyer or seller is a corporation, the person signing on behalf of the corporation
inserts signatures and, if available, the corporate seal. In case seal is not available, the person
may write “I have the authority to bind the corporation”.
MiniCram Notes 157

Other statements are not correct. In case the property is held in trust, all estate trustees must
sign the agreement. Power of attorney for dealing in property is not verbal but a written
authority. It must be registered in land registry office. It does not matter the attorney is a relative
of the registered owner or a lawyer. Only the names of registered owners need to be inserted in
the agreement. It is not a required that ‘all’ persons who have interest in the subject property
must be shown as owners. Non-ownership interests such as a right-of-way or a mortgage lien
need not be shown on the agreement.
15. B. The amount owed to others by a business is a liability and is found in the statement of
assets and liabilities.
The profit and loss statement or the operating expenses do not have this information.
16. A. Abandonment is the act of fully and finally leaving a leased property. In such situations,
the tenant does not want to return to the leased unit for resuming the business. The tenant
stops paying the rent and may also leave the doors unlocked.
Eviction is an action taken by the landlord to get the unit vacated. The given scenario does not
refer to a notice of termination. Adverse possession refers to unauthorized possession of land
by someone other than the owner.
17. D. Only statements 1, 3 and 4 are correct. The landlord may include the cost of any reasonable
expense such as the cost of pylon signs in maintenance expenses. The landlord may require the
tenants to repairs any damage to the property. Alternatively, the landlord may repair and charge
back the tenant. Most tenants agree to keep their stores open during the normal business hours
of the complex but certain tenants such as restaurants or convenience stores may be permitted
in their lease to stay open late.
According to the wording of the lease, most commercial landlords require prior consent for
assignment of the lease or subletting the premises. It is incorrect that ‘all’ tenants are required to
pay an equal amount towards first and last month rent. This amount typically depends on the
leased area.
18. B. After the commencement, the lease becomes the enforcing document. The landlords
must ensure that in case the tenant wishes to assign the lease or sublet the premises, he/she
must obtain landlord’s prior consent. The landlord, however, does not refuse consent arbitrarily.
Other statements are incorrect. It cannot be stated that most landlords prefer assignment or
subletting. In case subletting of premises is permitted, the original tenant is still liable to the
landlord for lease obligations. After the commencement, the lease is the governing document
and, according to the wording of the lease, landlord’s permission may be required for
assignment or may not be required. Privity of contract usually does not deprive the landlord of
his rights in case of assignment or subletting because the wording of the lease may not release
the original tenant when assignment or subletting takes place.
19. C. This statement is related to tax sheltering. Investors typically look for such commercial
properties that help them reduce or eliminate the taxes owed. The Income Tax Act permits
owners of commercial and investment properties to claim Capital Cost Allowance, which
generally reduces payable taxes.
MiniCram Notes 158

‘Cash flow’ refers to all cash flows from the property including the operations cash flow and the
cash flow from subsequent disposition of the property, known as sale proceeds cash flow.
20. B. If a taxpayer claims the profits from sale of a capital property as Capital Gains, the
responsibility of proof is on the taxpayer. Canada Revenue Agency may accept the profits as
Capital Gains provided that the taxpayer can support his claim.
Canada Revenue Agency is not required to accept any taxpayer’s claim whether the profit from
sale of a property is a Capital Gain or not. It is incorrect to state that the profit from sale of
investment properties is ‘always’ treated as Capital Gain. The taxpayer cannot even get an
order from Tax Court of Canada to validate his claim of Capital Gains. The Tax Court will
consider several factors before arriving at a conclusion.
21. C. The purpose of Due Diligence documents requirement is that the buyer needs to be
satisfied on matters related to the commercial property. These documents typically include
information on assets, liabilities and equity of the property.
It is incorrect to state that Due Diligence documents are solely based on the balance of
inventory or it is the same as the statement of assets and liabilities, though these are part of due
diligence documents. It is also not correct to state that these documents are created only to
comply with REBBA 2002 requirements. The primary purpose is that the buyer must be fully
informed about financial legal, environmental and structural matters related to the subject
commercial property.
22. B. Only statements 1 and 4 are correct. Registrants must be aware of visual signs or clues
that indicate soil or water contamination on a parcel of land. These factors may restrict or
prohibit the buyer for the proposed or intended use of the property after closing. Registrants
must include appropriate clauses in the agreement to protect the best interests of the buyer.
Possible soil of water contamination may also attract environment liability to the buyer.
Other statements are not correct. Registrants need not be experts in environmental matters, but
awareness of possible contamination or hazardous materials is sufficient. The pre-printed
‘Legal, Accounting and Environmental Advice’ clause in the agreement is only a disclaimer and
not an excuse for negligence concerning environmental matters. Failing to discuss
environmental concerns with a buyer may, in fact, increase the errors and omissions risk for the
registrant.
23. D. If appropriate, the Registrar of RECO has the authority to obtain credit information or may
refer to a criminal record search before approving an application for registration.
The applicant need not provide proof of any type of insurance before sending the registration
application. It is incorrect to state that an employee status is beneficial for getting personal
guidance as compared to independent contractor status. The brokerage is responsible to train,
guide, consul and mentor both employees as well as independent contractors for trading
purposes. An applicant has to sign up with a brokerage (as employee or as independent
contractor) before sending the registration application to RECO.
24. A. It is correct that income from real estate trading business is unpredictable. Some new
salespersons spend several months waiting for their first transaction to close.
MiniCram Notes 159

If a transaction involves lengthy negotiations or complex paperwork, it is not a guarantee that

the sale will close. Salespersons must use due diligence and keep aside the tax money they
receive. It is not a good idea to spend that money. Commercial buyers may also back off from
conditional sales and there is no guarantee that the sale will close, and the salesperson will
definitely receive commission.
25. D. 10,800 Square Feet

Building Size = 7,200 X 1.5 = 10,800 Square Feet
26. B. 10.28%
Total Cost or Investment = 9.84 + 72.86 = $82.70
Net Rent = $8.50
27. B. $110,995
Annual Operating Income = 360,000 – 3.5% + 11,250 = $358,650
Annual Expenses = 358,650 X 45% = $161,393
Net Operating Income = 358,650 – 161,393 = $197,257
Annual Debt Service = 7,188.50 X 12 = $86,262
Cash Flow Before Taxes = 197,257 – 86,262= $110,995
28. C. $98,750
Value = 39,500 X 2.5 = $98,750
►Tip: Ignore the List Price as well as the Operating Expenses.
29. A. $940,166.75 rounded to $940,000.

Effective Income = 680,000 ― 402,460 = $277,540
Net Operating Income = 277,540 ― 32.25% = $188,033.35
Value = 188,033.35 ÷ 20% = $940,166.75
Rounded to $940,000
30. B. $76,650
Additional Rent = 2,226,500 ÷ 122,000 X 4,200 = $76,650
►Tip: Ignore the total rentable area of the shopping centre. It is not required for calculating
Additional Rent for the Tenant. Also, you need not calculate the R/U Factor.
31. C. Nil; $8,050

MiniCram Notes 160

First Year
The annual gross sales are less than the base minimum sale.
Percentage Rent is NIL.
Second Year
Percentage Rent = 48,750 ― 40,700 = $8,050
32. D. $18,458.30
Number of Days in the Year = 170 (July 15 to December 31)
CCA for Year 1 = 24,200 X 20% X 50% X 170 ÷ 365 = $1,127.12
Undepreciated Capital Cost at the end of Year 1 using Half-Year Rule
= 24,200 – 1,127.12 = $23,072.88
CCA for Year 2 = 23,072.88 X 20% = $4,614.58
Undepreciated Capital Cost at the end of Year 2
= 23,072.88 – 4,614.58 = $18,458.30
►Tip: This is a new business. Do not ignore the date of incorporation. Only the date of
purchase is ignored.
33. C. The Undepreciated Capital Cost after the first year using the 50% rule would be $9,750
Cost of New Purchase = $10,000
CCA for the First Year = 10,000 X 2.5% = $250
UCC After First Year = 10,000 – 250 = $9,750
34. A. $10,100; $42,800

UCC as of January 1, 2016 = $48,100
New Purchase & Disposals
Cost of New Purchase in 2016 = $15,800
Cost of Used Equipment Disposed = $12,400
Capital Cost of Used Equipment = $11,000
Take the Lesser Amount of 1 and 2 = $11,000
Net Amount of New Purchase for 2016 = $15,800 - $11,000 = $4,800
CCA Calculations
CCA for Previous Equipment = $48,100 X 20% = $9,620
CCA for Net Cost of New Equipment = $4,800 X 10% = $480
Total CCA for 2016 = 9,620 + 480 = $10,100
MiniCram Notes 161

UCC As of January 1, 2017 = (48,100 + 4,800) – 10,100 = $42,800
35. D. Zero
The question clearly indicates that the property was sold only for its land value. This means that
the improvement allocation at the time of sale was zero. Recapture occurs only if the value of
improvement allocation has been maintained or has increased since acquisition.
36. B. Only statements 2 and 5 are correct. The purpose of the ‘Damage and Destruction’
clause is to reduce the rentals payable in case all or part of premises is damaged, and the
tenant is not able to use the premises. According to the wording of the clause, the tenant will not
be responsible for any rent payments during the period the premises remains unavailable for
use. The reduction in rent will be proportional to the area the tenant is not able to use due to
damage.
Other statements are incorrect. The abatement or reduction in rent is proportional to the
damaged area. The abatement will apply only when the damage is not due to the tenant or its
employees. The clause does not mention that the landlord must repair the damaged premises
within 10 days.
37. C. The Damage and Destruction clause does not state that the tenant will keep on paying
the rent even if there is damage to the unit or the shopping centre. This statement is incorrect.
Other statements correctly interpret the purpose of the clause.
38. C. Statements 4 and 5 are correct. The use of the premises must clearly be specified in the
Agreement to Lease – Commercial. Just inserting ‘Retail Sales’ may cause confusion between
the landlord and the tenant. Instead, the words such as ‘Retail Sales – Clothing Store’ are more
appropriate in the given situation. Also, the term of the lease must be from 1st of August to 31st
of July.
Other statements are not correct. The name of the tenant ‘Just for Ladies Inc.’ is correctly
inserted. Karen Abdi is only the authorized signatory for the tenant corporation. The offer clearly
states that the area of 2,000 square feet is ‘rentable’. The date of commencement of the lease is
August 1st, according to the rentals clause.
39. D. Statements 1 and 4 are correct. The annual rent for the 1st year should be $30,000
based on $15 per square foot rent and 2,000 square feet area. The rental details for 5-year
lease are not clear in the offer. These should either be spread in all five lines or there should be
a note that specifies the rent structure.
Other given statements are not correct. It is not necessary to fill up all lines for rent calculations,
provided a note is inserted with respect to rent structure. The monthly rent in the second line is
correct as given. The first month rent cannot be deducted from rent calculations just because it
is a part of the deposit amount.
MiniCram Notes 162

40. B. Statements 2 and 5 are correct. The deposit is specified as first and last months’ rent
plus HST. Accordingly, it should be ($2,500 + $3,000) = $5,500 + 13% = $6,215. In case the
deposit amount is payable to the landlord, the salesperson must inquire with the landlord
whether they have a trust account or not. If not, the words ‘and held in trust’ should be deleted.
Other statements are not correct. The deposit may be given ‘Herewith’ or ‘Upon Acceptance’,
whatever the case may be. It does not have to be ‘Upon Acceptance’ only. It is also incorrect
that the deposit must be payable to the listing brokerage. Since the deposit amount itself is
considered prepaid rent, it is not necessary to specify it separately in the lease offer.
41. B. The Legal Description of the property indicates that there is a major Hydro easement.
This is a valid concern for the buyer and an appropriate clause with respect to provision of an
up-to-date survey of the property should be included in the Schedule.
It is incorrect that the Legal Description cannot include a reference to the easement. The
Agreement of Purchase and Sale has specific space for any such reference right next to the
Legal Description. The Reference Plan number is Plan 2432, and it is clearly provided in the
Legal Description. Two lots which are owned by a single person can be sold in a single
Agreement of Purchase and Sale because these are included in the same Reference Plan.
42. D. The Deposit Clause indicates that the Deposit is payable ‘As Otherwise Described in the
Agreement’. This means that the Schedule must have an appropriate clause to describe how
and when the deposit is to be paid. There is no such clause in any of the attached Schedules.
Other statements are incorrect. There is no legal requirement that the deposit amount must be
minimum 10% of the Purchase price. The Deposit clause can include any of the three options –
Herewith, Upon Acceptance or As Otherwise Described in this Agreement. Deposit is typically
payable to the Listing Brokerage, which is XYZ Real Estate Ltd. In this scenario, ABC Realty
Inc. is the Co-operating Brokerage and will not hold the deposit funds.
43. A. In a typical real estate transaction, the Information on Brokerages section of the
Agreement of Purchase and Sale has information on the Listing Brokerage and the Co-
operating Brokerage. In the Notices clause, the sellers and buyers appoint their brokerages as
‘agents’ for the purpose of sending and receiving notices (documents). If the Notices clause
does not have any fax numbers or email addresses, this may mean that the clients have given
specific instructions to the brokerages that notices/documents must be delivered personally. If
these fax numbers of email addresses are missing, it is not a concern or mistake in the
agreement.
It is incorrect that the Notices clause is a mandatory clause and must be filled up. Also, it is not
a multiple representation situation because the sellers and buyers are represented by two
different brokerages. In a multiple representation situation, the Notices section is usually left
blank.
44. C. The Requisition Date within the Title Search clause is selected by the salespersons and it
should be after all the conditions have been either fulfilled or waived. In the given scenario, this
date is before the dates mentioned in conditional clauses. This may be a concern for the buyer.
MiniCram Notes 163

The Title Search does not typically start right after the Confirmation of Acceptance has been
signed by the parties. Requisition Date is not a distinct date from the Title Search date, but it is
just known as so because it is within the Title Search clause.
45. B. The Balance Due on Completion clause has been written very well and there are no
concerns. The six essential elements of the clause are there and the amount of balance due is
also correct.
The balance due is calculated by subtracting the deposits, assumed mortgages and seller take
back from the purchase price.
Hence, Balance = 925,000 – 100,000 – 345,000 – 50,000 = $430,000
There is no need to include the actual completion date in this clause.
46. D. The Seller Take Back clause is written as an agreement clause and not as a conditional
clause. The correct wording should be as follows: “The seller agrees to take back a second
Charge/Mortgage in the amount of ….”
The words ‘Not Less Than’ need not be inserted in the Seller Take back mortgage clause
because the amount of mortgage has already been agreed between the buyer and the seller.
These words are typically included in the ‘New’ mortgage clause wherein the buyer specifies a
minimum amount of mortgage loan. It is also not a requirement that the interest rate of the
Seller Take Back mortgage has to be more than the interest rate of the first mortgage. Inclusion
of Amortization period in a mortgage clause is optional.
47. A. The conditional clause for Due Diligence documents is a ‘Condition Precedent’. This type
of condition typically includes a waiver provision. The given condition precedent is poorly written
because the waiver provision is missing from the clause wording.
Registrants need not write each due diligence document in a separate clause and these can be
grouped in a single conditional clause. There is no need for an Escape clause in this offer
because commercial agreements usually take much longer time to close as compared to
residential agreements. The notice of fulfillment of condition is to be sent by the buyer to the
seller, as correctly given in the clause.
48. C. The signature lines for the buyer has been completed incorrectly. Although the name of
the buyer corporation has been inserted, the signatures of the officer/director working on behalf
of the corporation is missing.
In the given scenario, Peter M. Wilson should have signed in the space for buyers’ signature.
Besides this, either a corporate seal should be used or the words “I Have the Authority to Bind
the Corporation” should be inserted.
49. B. The Schedule should include a Postponement clause because the first mortgage
(Assumed Mortgage) expires before the second mortgage (Seller Take Back mortgage). The
first mortgage comes due on 30th June 2019 while the second mortgage runs for 5 years from
the date of completion up to 30th June 2022.
MiniCram Notes 164

The Mortgage Assumption clause clearly states that the mortgage assumption by buyer does
not need any approval from the seller’s existing lender. That’s why the condition part of the
mortgage clause is missing, and it is correctly written. It is incorrect to state that the clause for a
New first mortgage is missing. A new mortgage is not required in this scenario.
50. D. The date when the buyers sign the offer need not be the same date as the date on the
first page of the offer. In case the buyers sign the offer a day or two later, then that date is
considered the actual offer date. The date on the first page of the offer is the date of offer
preparation.
The exact date of completion need not be included in the Balance Due on Completion clause
because it is given in the pre-printed Completion clause. It is incorrect that the
Acknowledgement date cannot be the same date as the date of Confirmation of Acceptance.
Also, the Confirmation of Acceptance must be signed before the Irrevocable date.
---------------------
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MiniCram Real Estate Exam - Commercial

MiniCram Real Estate Exam

Warning and Disclaimer

► There is no representation, warranty or guarantee, of any kind whatsoever, whether

EXAM FORMAT - THE COMMERCIAL REAL ESTATE TRANSACTION

First 12 Questions 1 Mark Each 12 Marks

Next 26 Questions 2 Marks Each 52 Marks

Last 12 Questions 3 Marks Each 36 Marks

Total Questions – 50 100 Marks

10 TIPS FOR THE EXAM

PART I – STUDY NOTES

1. THE OFFICE AND RETAIL MARKET

1.1 The Office Market

1.2 Zoning By-Laws

1.3 Office Building Construction

Design and Layout

Exterior Curtain Walls

Life Safety Systems

1.4 The Retail Market

Structure of Retail Market

1.5 Retail Planning and Zoning

1.6 Retail Construction

Masonry and Concrete

2. INDUSTRIAL LAND AND BUILDINGS

2.1 The Industrial Market

Industrial Building Categories

Valuation of Industrial Property

2.2 Requirements for Industrial Sites

2.3 Industrial Zoning

Single-Use vs. Multi-Use

2.4 Typical Building Components

Features and Characteristics

• Floor Load: Consists of two types –

➢ Live Load consists of weight of people, equipment and materials.

3. MULTI-RESIDENTIAL, FARMLAND AND RECREATIONAL

3.1 Multi-Residential Buildings

Demand and Supply

Impact of the Residential Tenancies Act

• Infill Zoning Requirements –

➢ Infill zones are typically found in inner city neighbourhoods.

3.2 Agricultural and Farm Land

• The term agriculture refers to the production of goods through farming.

Evaluation of Farm Market

Farm Quotas and Marketing Board

Farm Land Leasing

Farm Land Zoning

Farming and Food Production Protection Act (FFPPA)

Nutrient Management Act

Sale of Farm Land- Buyer Considerations

➢ Continue the farming business,

3.3 Recreational Properties

Types of Recreational Properties

Hotels, Motels, Lodges and Resorts

Planning and Zoning

3.4 Land Development

Planning Act Considerations

Land Development Application

4.1 Investment in Commercial Property

4.2 Decision Making