Industrial Property in Alberta: Considerations for Purchase and Lease

October 30, 2023

Written By Michael Chow, Mark Kortbeek, Riley Whitlock, and Michael Ramsay

The industrial real estate sectors in Calgary and specifically, Rocky View County, and Edmonton, have experienced a consistent demand for both purchase and lease transactions over the past several years. This is driven by a combination of factors.

Calgary and Edmonton have a strategic position within western Canada and is a thriving hub for supply networks such as air, rail (including intermodal hubs) and roads. Rocky View County stands out as a high area of demand in Alberta, largely due to its favorable location, supply and property tax rates thus making it an attractive destination for large bay industrial projects.

Other major factors for the demand in Alberta include: (1) the cost of industrial land, which has been significantly lower than other major urban centres such as Vancouver and Toronto; and (2) the favourable supply of industrial land compared to Vancouver and Toronto which both have experienced a critical shortage of supply for purchase and lease.

When looking to purchase or lease industrial real estate in Alberta there are a number of considerations that can bear significant consequences.

1. Structuring of Purchase or Lease Agreement

A term sheet and subsequent purchase agreement will need to include different terms depending on whether you are purchasing an existing building or bare land and whether you are purchasing a build-to-suit from the developer or hiring a third party contractor to construct the building. The nature of the transaction can also change through the negotiations. Any lease agreement should ensure that the landlord or tenant is adequately protected with respect to such issues as: permitted use, landlord's work, tenant build out, operating costs, maintenance and repair obligations, insurance and assignments.

2. Due Diligence

Real estate transactions require familiarity with the Alberta Land Titles system and experience reviewing the types of instruments and agreements commonly affecting industrial property and new industrial developments such as option to re-purchase agreements in favour of municipalities, restrictive covenants, architectural control guidelines, development agreements and lot owners' associations encumbrances. Beyond a title and document review, there are many off-title searches that may be advisable depending on the location and nature of the land and the type of development which may uncover important issues such as environmental or regulatory issues, third party rights, servicing or access issues.

3. Foreign Ownership of Land Regulations

Any purchase or lease of real estate outside of a city, town, new town, village or summer village may be subject to the Foreign Ownership of Land Regulations. The purchaser or tenant needs to know if they are able to complete the transaction and what possible exemptions or processes may be available to the purchaser or tenant to complete the purchase if it is determined that the purchaser or tenant is a foreign controlled corporation in accordance with the regulations.

4. Development and Construction

If the development of the lands and/or the construction of a building on the lands is to be included as part of the transaction, it is important to prepare the applicable development and construction aspects of the purchase agreement. Including development or construction in the purchase agreement requires several additions to the contract such as including building specifications, addressing occupational and health issues, timelines for construction and delays, liquidated damages in the event such timelines are not satisfied, additional force majeure considerations, builders’ liens covenants and fulsome representations and warranties.

5. Permits

Failure of the vendor, developer or contractor to obtain and comply with development, building and occupancy permits can create liability for subsequent owners and cause issues for future development, construction, operation or financing of the property.  It is essential to search for the permits as part of the due diligence and follow-up on any outstanding permits as part of the post-closing matters.

6. Financing

If the purchaser requires third party financing to close the transaction, the specific loan documents required by the lender need to be reviewed and all due diligence, closing (including title insurance and registration matters) and post-closing obligations of the purchaser as borrower must be addressed.

7. Closing and Post-Closing Items

Where development or construction is a part of the transaction, the mechanics for determining substantial completion and how deficiencies are addressed are integral for closing. After closing, it is essential to review any punch list items and deficiencies not completed and to pursue closure of the building and development permits and issuance of the final occupancy certificates to ensure that the vendor has fulfilled its obligations under the purchase agreement.

The Bennett Jones Commercial Real Estate, Construction and Infrastructure and Project Development teams are actively engaged with industrial projects and transactions in Alberta (as well as Ontario an British Columbia). If you have any questions about the real estate and/or construction aspects of a transaction, project or development in this sector, please contact us.

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