‘Time is of the Essence’ Clause Requires Strict Compliance in Real Estate Transactions

September 13, 2016

Most agreements for purchase and sale of property include provisions that “time is of the essence”. The purpose of a “time of the essence” provision is to make clear that any delay in performance of a contract may relieve the non-breaching party from the performance of its duties.

The recent case of 2336574 Ontario Inc. v. 1559586 Ontario Inc. confirms that the Court requires strict compliance with time-sensitive obligations in purchase and sale agreements. In other words, a purchaser’s failure to advance funds on the day of closing constitutes a material breach which the vendor can rely on to terminate the contract, regardless of whether the purchaser subsequently has funds.
In this case, the parties entered into an agreement of purchase and sale for a commercial condominium.

Upon interim occupancy, the Purchaser took possession of the condominium without incident. However, without providing reason, a month before final closing, the purchaser’s solicitor asked for an extension of the closing date, but was refused. On the day of closing, the vendor tendered and the purchaser did not. The very next day, the purchaser’s solicitor emailed the vendor’s solicitor advising that the purchaser had funds and was in a position to close. The vendor refused to close.

The purchaser sued for specific performance and relief from forfeiture of the deposit funds. The vendor sued for a declaration that the agreement was at an end and that the purchaser had forfeited its deposit, and brought a motion for summary judgment.

The purchaser, relying on the Supreme Court decision, Bhasin v. Hrynew, argued that the vendor did not need to have a virtuous reason for refusing to grant a short extension or for refusing to close one day late, when funds were available.

The Court clarified that a duty of good faith is required in contract law, but it is defined by the specific relationship between the parties. Where the parties have a long-term, ongoing relationship, a level of good faith may be expected that imposes flexibility and obligations beyond the letter of the contract. On the other hand, where the parties are commercially experienced buyers and sellers in a discrete, one-off transaction, good faith means sticking to the contract and not deviating.

The purchaser missed the closing date by a day. That was enough to put an end to the contract.
The Court also confirmed that the deposit is forfeited to a vendor upon a purchaser’s failure to close, unless the purchaser can prove that the deposit is unusually large compared to the purchase price or represents a disproportionate amount of liquidated damages.
 
Monica Peters is a lawyer at Garfinkle Biderman LLP in Toronto. Monica specializes in commercial litigation and arbitration with a strong focus on property-related disputes. Monica can be reached at 416.869.7647 or mpeters@garfinkle.com.
 

Contact Us

Garfinkle Biderman would be pleased to discuss any legal matter with you to determine how we can be of assistance. 

Contact Us Today »

Our Practices

Garfinkle Biderman is powered by a team of lawyers specializing in a wide range of practice areas.

Read More »

Contact Us

Garfinkle Biderman would be pleased to discuss any legal matter with you to determine how we can be of assistance.

Contact Us Today »

Our People

Garfinkle Biderman currently has 50 people: 18 lawyers and 32 staff.

Meet Our Team »

Contact Us

Garfinkle Biderman would be pleased to discuss any legal matter with you to determine how we can be of assistance. 

Contact Us Today »

Our Practices

Garfinkle Biderman is powered by a team of lawyers specializing in a wide range of practice areas.

Read More »

Contact Us

Garfinkle Biderman would be pleased to discuss any legal matter with you to determine how we can be of assistance. 

Contact Us Today »

Our Practices

Garfinkle Biderman is powered by a team of lawyers specializing in a wide range of practice areas.

Read More »

Contact Us

Garfinkle Biderman would be pleased to discuss any legal matter with you to determine how we can be of assistance.

Contact Us Today »

Our People

Garfinkle Biderman currently has 50 people: 18 lawyers and 32 staff.

Meet Our Team »

About Us

Garfinkle Biderman founded in 1948, is full service law firm with proven experience in various areas of law.

Read More »

Our Practices

Garfinkle Biderman is powered by a team of lawyers specializing in a wide range of practice areas.

Read More »