“Time is of the essence”- the deadline you can’t miss
It is very common for Agreements of Purchase and Sale (APS) to contain a clause known as a “time is of the essence” clause. This clause is used when parties to a contract have agreed to perform certain obligations within a specified time. When there is a failure to meet those obligations before the set time, it would result in a breach of contract and the defaulting party may become liable in damages. There may be other legal remedies available to the non-defaulting party, such as termination of the contract.
For a time is of the essence clause to be effective, parties to the contract must be ready, willing and able to close a particular transaction on the specified date and time. Therefore, a party would not be permitted to rely on a time is of the essence clause when they are also in breach of any term of the contract.
The recent decision in Fortress Carlyle Peter St. Inc. v. Ricki’s Construction and Painting Inc., 2019 ONCA 866, is a perfect illustration of the importance of a time of the essence clause and circumstances when the court would allow reliance on it. In this case, the purchaser and vendor signed an APS in respect of a property. The APS provided that estoppel certificates for the existing tenants were to be provided to the purchaser five days before closing. Contrary to what was agreed, the vendor provided the purchaser with an estoppel certificate that did not match their APS. Subsequently, the vendor resent a correct estoppel certificate to the purchaser just an hour prior to the proposed time of closing. Because of the delivery of the documents such a short time period before closing, the purchaser requested an extension to close the next day so as to review the certificates. However, by 6:00 p.m. the vendor confirmed that it was ready and willing to complete the transaction and that it would not provide an extension. The purchaser proceeded to transfer the funds for the property at 6:16 p.m. but the vendor claimed a breach of contract, and that the agreement was dead because the purchaser failed to comply with the specified time.
In this case, it was held both at the lower court and on appeal at the Ontario Court of Appeal, that the vendor's delay and breach of contract would not permit them to rely on the time being of the essence clause. Specific performance was therefore allowed in favor of the purchaser.
The Court also held that where both parties have breached some terms of their APS, time will no longer be of the essence but the terms of the contract can still be complied with. If the parties however want to make time of the essence again, they would both need to agree on a revised date.
It is key to note that a "time is of the essence" clause can be waived by parties through their conduct or by election, that is, where parties decide to extend the specified time themselves.
In conclusion, a “time is of the essence clause” is an important clause in real estate transactions as it helps parties conclude their transactions on time and avoid unnecessary delays. With the economic hardship caused by the Covid-19 pandemic, it is more important than ever for parties to specifically agree on which parts of an agreement will have a time constraint and which ones can be extended.
If you would like to know more about the “time is of the essence” clause in your purchase agreement and its impact on your real estate transaction, you can book a free consultation with Northview Law at this link, or contact us at 416-639-7639. We look forward to hearing from you.