Why You Need A Lawyer For Due Diligence When Buying A Gas Station Business

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Legal considerations when buying a gas station

If you’re thinking about buying a gas station, it’s important to do your due diligence before making any final decisions. Taking the time to review key details can help you avoid unexpected problems and make sure you’re investing wisely. When you work with a lawyer throughout the process, they can help you understand the legal complexities and take care of the due diligence that is needed along the way. 

There are many details involved that require a keen eye for detail. Knowing the laws and regulations surrounding your purchase and business is crucial to know what exactly you are purchasing and what limitations might be imposed on it after signing on the dotted line. To help guide you in the right direction while you’re doing your preliminary research, we’ve outlined a few things you will want to know in advance of making any purchase of a gas station business. 

Laws and Regulations You Need To Know When Buying a Gas Station in Ontario

Buying a gas station in Ontario means following strict laws and regulations including environmental laws, health and safety regulations, and advertising standards. Before buying a gas station, it’s important to work with a lawyer to ensure that the gas station you’re considering purchasing is compliant with all applicable laws and regulations.

Legal Review of Licenses, Contracts and Records

When reviewing a potential business purchase, your lawyer will carefully examine all key documents related to the business, such as licenses, lease agreements, and contracts. These documents must be legally compliant, and free from potential issues that could arise after the sale. 

Some of the essential records your lawyer will check include:

  • Ontario Licence to Operate a Retail Outlet – This is the primary licence required to run a gas station in Ontario. Before it is issued, the Technical Standards & Safety Authority (TSSA) conducts an Engineering Review and Inspection. The approval process typically takes up to 30 business days, though a rush service (5-10 business days) is available.
  • TSSA Inspection Reports – These reports outline the most recent inspections conducted by the TSSA and highlight any outstanding compliance issues that need to be addressed.
  • Maintenance Records – A complete history of equipment maintenance should be reviewed to ensure all systems are in good working condition.
  • Corrosion Protection Records – Required only if the underground tanks and pipelines are made of steel, these records confirm protective measures have been taken to prevent corrosion.
  • Precision Leak Test Results – This test ensures there are no leaks in the underground storage tanks or piping.
  • Environmental Site Assessment Reports – The seller should provide a copy of the environmental assessment, which consists of two phases:
    • Phase I Environmental Site Assessment – Identifies whether further investigation, such as intrusive sampling, is needed or if no further action is required.
    • Phase II Environmental Site Assessment – Determines whether remediation is necessary and assesses if site conditions could lead to environmental harm, requiring notification to regulatory authorities.
  • Underground Storage Tank (UST) Registration – Ensure that all USTs are properly registered with the TSSA to comply with regulatory requirements.

By thoroughly reviewing these documents, your lawyer can ensure the business meets all legal and safety standards before moving forward with the purchase.

Checking for Debts and Legal Issues When Buying a Gas Station

Your lawyer will conduct a search for outstanding loans, liens, or legal claims against the business or property. Hidden financial or legal liabilities could affect your investment, so it’s important to uncover any issues before you buy.

Franchise vs. Independent Ownership

When it comes to owning a gas station, you have two main options: franchising or independent ownership. A franchised gas station comes with set rules and obligations, including franchise fees and requirements set by the franchisor. While this provides brand recognition and support, it also means you have less control over business decisions.

On the other hand, owning an independent gas station gives you more freedom to run things your way. However, this also means taking on more responsibility for operations, compliance, and marketing. Before making a decision, it’s a good idea to consult a lawyer to understand the legal commitments involved with each option.

Reviewing the Financials and Verifying Sources of Revenue

You and your accountant will want to take a close look at the gas station’s income statements, balance sheets, and cash flow reports to assess its profitability. Working with an accountant or financial advisor helps interpret the numbers to ensure the business is financially stable.

You also need to confirm that the business’s reported income from fuel sales, the convenience store, car wash services, or other sources is accurate and reliable. Inconsistencies in revenue figures could indicate problems with the business and holes in information overall could be a red flag.

Inspecting the Property and Equipment

Visit the gas station to check the condition of the pumps, storage tanks, buildings, and overall facilities. Make sure everything is well-maintained and complies with safety regulations. Repairs or upgrades could add unexpected costs, so a thorough inspection is essential.

Work With a Team of Professionals If You’re Buying a Gas Station

Buying a gas station involves legal, financial, and operational risks. Work with a lawyer, accountant, or financial advisor to ensure you understand the full scope of the purchase and, if you are purchasing a franchise, you might also ask to interview a few store owners directly. Their expertise can help you avoid costly mistakes and make an informed decision as to whether or not that gas station you are interested in buying is worth the investment.

If You’re Considering Buying a Gas Station, Work With the Experienced Lawyers at Hukam Law To Protect Your Investment

By reviewing the key areas outlined above and working with a trusted business lawyer to review all legal aspects, you’ll have the confidence you need to move forward with your business investment. At Hukam Law, our lawyers are experienced in handling all legal aspects of making a gas station purchase and we fully understand the obligations when it comes to the franchise world. Contact us at 705-915-0884 or send an email to info@hukamlaw.ca to get your business started and on a solid track to success.

***The information provided in this blog is for general informational purposes only and should not be construed as legal advice. If you have legal questions, we strongly advise you to contact us.