By Raz Toor, Lawyer and Founder of Falcon Law PC
Buying a gas station in Ontario is often both a business acquisition and a real estate transaction.
The buyer may be acquiring the operating business, convenience-store inventory, fuel equipment, contracts and goodwill. At the same time, the transaction may involve purchasing the land underneath the station or taking over a long-term commercial lease.
That combination makes gas station transactions different from many ordinary small-business purchases.
Environmental history, underground storage tanks, fuel-supply arrangements, real estate title, financing and regulatory requirements can all materially affect the value of the deal.
I’m Raz Toor, the founder of Falcon Law PC. We act for business buyers and sellers across Ontario and also handle commercial real estate transactions. For a gas station acquisition, those two areas of practice often need to work together from the beginning.
Start by Understanding What Is Actually Being Purchased
The words “buying a gas station” can describe several very different transactions.
A buyer might purchase the land and the operating business together. The seller might own the business but lease the site from a third-party landlord. The buyer might acquire only the assets of the operating company, or it might purchase the shares of the corporation that owns both the business and the real estate.
Those structures should not be treated as interchangeable.
Before negotiating the final purchase agreement, I would want to understand who owns the land, who owns the fuel equipment, which entity operates the station, what contracts are in place and exactly which assets and liabilities are intended to change hands.
For a broader overview of transaction structuring, see our Business Purchase & Sale legal services.
Is the Real Estate Included?
This is one of the first questions I would ask.
If the seller owns the property and the land is included in the transaction, the buyer is not merely purchasing a gas-station business. The buyer is also acquiring commercial real estate.
That means the transaction needs to address title, mortgages, registered easements, access, zoning, property taxes, closing adjustments and any other registrations affecting the property.
The buyer’s lender may also have separate requirements relating to the land and environmental condition of the site.
Falcon Law PC handles both the business acquisition and Ontario real estate aspects of these transactions. You can learn more about our Ontario real estate legal services.
What if the Gas Station Site Is Leased?
Some operators own the gas-station business but not the property.
In that situation, the commercial lease can be one of the most important assets being acquired.
A profitable station with only a short period remaining on its lease may be substantially less valuable than the headline business price suggests.
I would want to review the remaining term, renewal options, rent increases, additional rent, assignment provisions, landlord-consent requirements, permitted use and any obligations dealing with fuel equipment, maintenance or environmental matters.
It is also important to understand whether the operator is the direct tenant or operates under a sublease or another arrangement connected to the fuel supplier or brand.
For leased locations, see our Ontario commercial lease legal services.
Asset Purchase or Share Purchase?
Like most business acquisitions, a gas station can potentially be purchased through an asset transaction or a share transaction.
In an asset purchase, the buyer identifies the specific assets it is acquiring. Depending on the deal, that could include the business name, equipment, inventory, contracts, fuel systems, convenience-store assets and the real estate itself.
This structure can give the buyer more control over which liabilities are expressly assumed, although some liabilities can still follow the business or property by law.
In a share purchase, the buyer acquires the corporation that already operates the station. If that corporation owns the land, the corporation normally remains the registered owner after closing; what changes is ownership of the corporation.
That continuity may be commercially useful, but the buyer is also acquiring the historical corporation together with its existing liabilities and risks.
The appropriate structure should be reviewed with both legal and tax advisers. Our more general discussion is available in Asset Purchase vs. Share Purchase in Ontario.
Environmental Due Diligence Is Particularly Important
For most businesses, environmental due diligence may be a secondary consideration.
For a gas station, it can be central to the transaction.
Petroleum products may have been stored and dispensed at the property for decades. Historical spills or leaks can affect soil or groundwater even where the current station appears well maintained.
A buyer purchasing the land should therefore understand the environmental history of the property before closing.
A Phase I Environmental Site Assessment is commonly used to investigate the historical use of the site and identify potential environmental concerns. Where the Phase I identifies an issue requiring further investigation, environmental consultants may recommend a Phase II assessment involving physical sampling.
Whether a particular assessment is legally mandatory is a different question from whether it is commercially prudent. Environmental assessments are frequently used in property transactions and financing even where no Record of Site Condition is legally required merely because the property is being sold.
The environmental consultant should advise on the scientific condition of the property. The lawyer’s role is different: we review how environmental risk is dealt with in the transaction documents, due diligence conditions, representations, indemnities and closing structure.
Ontario’s environmental site-assessment regime also becomes particularly relevant where contaminated land is being remediated or where a change in land use requires a Record of Site Condition.
Past Contamination Can Matter Even if the Seller Did Not Cause It
Gas-station properties sometimes have a long operating history involving several previous owners and operators.
A contamination issue discovered today may therefore have originated years before the current seller acquired the site.
That history does not make the problem irrelevant to a buyer.
The buyer needs to understand the present environmental condition of the land and the potential legal and financial consequences of owning or controlling a contaminated site.
Where environmental concerns exist, the purchase agreement may need to deal specifically with remediation obligations, responsibility for historical contamination, access for further testing, indemnification or the buyer’s right to terminate the transaction.
Fuel Operations Are Regulated
Ontario gas stations also operate within a specific fuel-safety framework.
The Technical Standards and Safety Authority regulates liquid-fuel facilities under Ontario’s fuel-safety regime. TSSA’s current licensing system includes licences to operate liquid-fuel retail outlets such as gasoline stations.
For a purchaser, this means the regulatory transition should be considered before closing rather than assuming that the seller’s approvals can simply be ignored once ownership changes.
I would want to confirm the status of the facility, understand the applicable TSSA requirements and identify what applications, ownership updates, inspections or other steps need to occur in connection with the transaction.
The closing date should take account of any regulatory steps that are necessary for the buyer to operate lawfully after taking possession.
Underground and Aboveground Fuel Tanks Matter
The tanks and related fuel infrastructure are obviously central to the business, but buyers should determine precisely what equipment exists and who owns it.
A supplier may own certain equipment even though it is physically located at the station.
The buyer should also understand the tank configuration, capacity, age, inspection and maintenance history and any known leaks, repairs or regulatory concerns.
Those are matters that often require information from the seller, TSSA records and appropriate technical consultants rather than legal review alone.
Fuel Supply and Branding Agreements Can Drive the Economics of the Deal
Many gas stations operate under a recognizable fuel brand.
That branding can create substantial goodwill, but it usually comes with contractual obligations.
The fuel supply agreement may determine where fuel must be purchased, how long the relationship lasts, what volume requirements apply, who owns branded equipment and signage, what happens if the property is sold and whether the supplier must approve a new operator.
The agreement may also contain security arrangements, termination rights or de-branding obligations.
A buyer should not value a station on the assumption that the existing fuel relationship will continue until that assumption has actually been confirmed.
If supplier consent is required, that should normally be addressed as part of the transaction rather than after closing.
Franchise and Convenience-Store Arrangements May Be Separate
Some gas stations combine several businesses at one location.
The station may include a branded convenience store, restaurant, car wash, lottery sales, ATM operations or other revenue streams.
Those operations may be governed by agreements separate from the primary fuel-supply contract.
A buyer therefore needs to understand where the station’s actual profitability comes from and which contractual relationships are required to preserve those revenue streams.
If a franchise is involved, the buyer may also need franchisor approval and should review the applicable disclosure and franchise documentation before committing to the acquisition.
Inventory Should Be Dealt With Carefully at Closing
The purchase price quoted for a gas station does not always include every dollar of inventory on the property.
Fuel inventory and convenience-store inventory may be adjusted separately at closing.
The agreement should explain how inventory is counted, who performs the count, how it is valued and whether obsolete or unsaleable inventory is excluded.
Fuel requires particular care because there may be substantial value sitting in the tanks on closing day.
The buyer and seller should know whether that amount is included in the negotiated purchase price or added as a closing adjustment.
Financing Can Affect the Transaction Structure
Gas station acquisitions are often financed.
Where real estate is included, the lender may take a mortgage over the property together with security over the operating company’s business assets.
The lender may require environmental reports, appraisals, corporate searches, insurance and confirmation that important contracts can continue after closing.
If the seller is financing part of the purchase price through a vendor take-back note or mortgage, the priority between the seller’s security and the bank’s security needs to be worked out as part of the deal.
Financing conditions should therefore be considered early in the Letter of Intent or purchase agreement.
Do Not Ignore the Real Estate Closing While Negotiating the Business Deal
Where land is included, the real estate component should not be treated as an administrative task to be dealt with after the business agreement is signed.
The business and property transactions need to close together.
If there is a title defect, environmental problem, financing issue or inability to obtain the required discharge of an existing mortgage, that can prevent the entire acquisition from closing.
Similarly, the purchase agreement should make clear whether the quoted price is allocated between the operating business and the real property and how closing adjustments will be calculated.
Tax and accounting advice should be obtained regarding that allocation and the tax consequences of the transaction.
What Should a Buyer Investigate?
A gas station acquisition requires both ordinary business due diligence and property-specific due diligence.
On the business side, I would want to understand the corporation, financial records, material contracts, employees, inventory, equipment, litigation, secured debt, fuel arrangements and any franchise or supplier relationships.
On the real estate side, the review may involve title, mortgages, easements, zoning, property taxes, survey matters and environmental history.
The regulated-operational side then adds TSSA licensing and fuel-facility considerations.
These are connected questions. A buyer should not finish the corporate due diligence and only then begin asking whether the land itself presents a problem.
Buying the Business Without Buying the Land
Where the seller owns both the business and the property, a buyer may sometimes want only the operating business.
That can potentially be structured with the seller retaining ownership of the land and leasing the station to the purchaser.
If so, the economics of the lease become part of the acquisition economics.
A buyer paying a substantial amount for the operating business needs sufficient certainty that it will have the right to remain at the location for a commercially reasonable period.
The purchase agreement and new lease should therefore be negotiated together rather than independently.
Selling a Gas Station
For sellers, preparation can make the transaction considerably easier.
Before putting the station on the market, I would want to know whether the corporate records are current, whether the land title is clean, what financing needs to be discharged, whether environmental reports already exist and what the fuel-supply or franchise agreements require when the business is sold.
If the property is leased, the seller should understand the landlord’s assignment requirements before promising the buyer that the lease can simply be transferred.
Historical environmental problems should also be addressed directly rather than discovered for the first time after the buyer orders its own environmental report.
The Purchase Agreement Needs to Reflect the Particular Station
A generic small-business purchase agreement is rarely enough for a meaningful gas station transaction.
The agreement should reflect the actual deal: whether land is included, what fuel and convenience-store inventory is being purchased, which contracts must be assigned, what supplier and landlord consents are required, what happens if the environmental investigation is unsatisfactory and which regulatory steps must be completed before or after closing.
Representations and warranties should similarly be tailored to the station rather than copied from an unrelated business acquisition.
Why Business and Real Estate Counsel Need to Work Together
Gas stations are a useful example of why the legal distinction between “business law” and “real estate law” can sometimes be artificial from the client’s perspective.
The client is buying one economic operation.
But legally, that operation may consist of a corporation, land, a commercial lease, equipment, regulated fuel infrastructure, supplier contracts, employees, inventory and goodwill.
The transaction needs to work as a whole.
At Falcon Law PC, our Business Purchase & Sale and Real Estate practices allow us to approach these transactions from both sides rather than treating the real property as an afterthought.
How Falcon Law PC Can Help
Falcon Law PC acts for buyers and sellers of businesses throughout Ontario, including transactions where commercial real estate or leasing forms part of the deal.
For a gas station transaction, our work may include structuring the acquisition, preparing or reviewing the Letter of Intent, completing legal due diligence, reviewing fuel and commercial agreements, negotiating the purchase agreement, conducting real estate title work, coordinating financing, dealing with landlord or supplier consents and completing the business and real estate closing.
Environmental engineering and scientific assessments are handled by appropriate environmental consultants, and tax matters should be coordinated with the client’s accountant or tax adviser.
For broader ongoing corporate matters after the acquisition, see our legal services for entrepreneurs and business owners.
Before You Commit to the Purchase
A gas station can be a valuable operating business and a valuable piece of commercial property. It can also carry risks that are not obvious from the seller’s financial statements.
The buyer should know what they are acquiring, whether the site itself is environmentally and legally acceptable, whether the fuel and lease arrangements can continue and whether the regulatory and financing pieces can be completed on the proposed closing date.
Those questions are best answered before the buyer becomes unconditionally committed to the transaction.
This article is intended for general informational purposes only and does not constitute legal, environmental, tax, engineering, regulatory or financial advice. Gas station transactions should be reviewed based on the particular business, property, fuel systems, contracts and transaction structure involved.