The deputy fire chief for the Cape Breton Regional Municipality says firefighters responded to the blaze at 2 p.m. Friday and when they arrived, the building was engulfed in flames.
Richard Bulley says the mostly wooden structure burned quickly due to its age and construction.
"It's been part of the Sydney area for quite a few years," Bulley said. "It's a significant loss."
The yacht club's website says construction on the building began in 1899.
Don Landry, a spokesman for the Enterprise Cape Breton Corp., said the economic development agency purchased the property for $280,000 in March in order to obtain real estate on the waterfront.
"Our plan was to work with the Cape Breton Regional Municipality in an effort to develop a vision for future waterfront development," he said.
Bulley said the fire marshal is investigating the cause of the fire.
Landry said the building had been boarded up and secured.
Nobody was injured in the blaze.