“Time is of the Essence” in real estate transactions

A recent unanimous decision of the Ontario Court of Appeal[1] (“ONCA”) examined the meaning of a “time is of the essence” clause in an agreement of purchase and sale and the right of a non-defaulting party to terminate the agreement as a result.  While it may seem obvious to most that “time is of the essence” really does mean that a party is expected to perform its obligations under the contract within the prescribed time, Gill made it clear that a court will not “rewrite the parties’ bargain” under the contract, notwithstanding that the result may be “harsh”.[2]

Gill involved an investor-buyer and a builder-vendor who entered into three (3) separate agreements of purchase and sale for the purchase of three (3) preconstruction residential homes.  The third agreement (the “Agreement”), which was the subject matter of the appeal, was amended, at the request of the vendor, to extend the closing date from August 31, 2021 to January 28, 2022 and contained a “time is of the essence” clause  (“TOTE Clause”). The Agreement stipulated that funds must be received by no later than 3:00 p.m. on January 28, 2022, and failure to do so permitted the non-defaulting party to terminate the transaction. It is worth noting that the other two (2) transactions between the parties closed as scheduled.

In the days preceding the closing, the vendor’s lawyer on several occasions reminded the purchaser’s lawyer of the closing time and date. At 2:47 p.m. on the day of closing, the purchaser’s lawyer advised the vendor’s lawyer by email that they were in receipt of funds and that they were making arrangements with its bank to deliver the funds to them.  At 3:10 p.m., the vendor’s lawyer advised the purchaser’s lawyer that they received instructions not to close and that the Agreement was terminated as the purchaser failed to deliver the closing funds by 3:00 p.m. Funds were delivered by the purchaser’s lawyer to the vendor’s lawyer 35 minutes late.

The purchaser brought an application seeking, among other relief, a declaration that the vendor breached the Agreement when it was terminated at 3:10 p.m. on the day of closing.  The application judge held that “while the result seemed harsh, it was not unfair for the [vendor] to enforce the payment deadline in light of the ‘time is of the essence’ clause.”[3] The application judge relied on prior Ontario decisions, which supported rigid adherence to timelines in a contract where a TOTE Clause was present, especially where the parties are sophisticated and in the business of real estate, as was the case here.[4]

When this matter arrived before the ONCA, the court upheld that “while the outcome for the [purchaser] was indeed harsh, it was not unconscionable or unfair.”[5] The ONCA found that the wording of the Agreement was clear and unambiguous and that, “it would be an unwarranted intervention into the freedom of contract for a court to alter the [Agreement] and its closing time.”[6] Put another way, where does the court draw the “proverbial” line in the sand when the non-defaulting party insists on timely performance?  One, two, three, eight hours late? A TOTE Clause, if included in a contract, must have meaning. “Late is late,” absent any clear exceptions under the contract or by the conduct of the parties to the contract.[7]

Ontario courts are not alone in strictly interpreting TOTE Clauses. 

In British Columbia, the Court of Appeal[8] held that even where a party demonstrates they are otherwise ready, willing and able to close but does not meet the deadline under the contract, TOTE Clauses may be strictly enforced by the non-defaulting party. In Tannery, the purchaser failed to submit documents to the Land Title Office (“LTO”) before it closed at 3:00 p.m.

Similarly, Alberta courts have held that “where the parties have stipulated that time is of the essence, the courts will generally not assist the party which has failed to perform on time.”[9] While noting that the presence of good faith is paramount, the Alberta courts have highlighted the importance of contractual certainty relating to closing dates for the sale of land,[10] provided the non-defaulting party has demonstrated that they are ready, willing and able to close.[11]

In Quebec, the courts also require strict adherence to performance under the contract, which contains a TOTE Clause; however, where a party has acted in bad faith,  the bad faith actor will not be able to rely on the TOTE Clause to his or her benefit.[12]

Saskatchewan courts have also highlighted the relevance of a party’s conduct when relying on a TOTE Clause, holding that where an explicit clause does not exist and the parties have never acted as though time is of the essence, one will not be inferred.[13]

Exceptions to strict reliance on TOTE Clauses under a contract.

Waiver

If a party, fully aware of their right to rely on a TOTE Clause, communicates their intention to abandon that right, a court may find that waiver has occurred. This communication may be formal or informal, and may be inferred from conduct.[14]

For example, implied waiver may include: (i) parties continuing to perform the terms of an agreement after deadlines have passed, thus conducting themselves as if the agreement is still alive but that time is not of the essence; or (ii) parties agreeing to extend a deadline without expressly stating that time shall remain of the essence.

Ready, Willing and Able

Parties seeking to rely on a TOTE Clause must perform all of their obligations under the agreement and otherwise be ready, willing and able to proceed with the transaction. In the context of a real estate closing, this generally means having all deliverables prepared and ready to provide to the other party. A court may find, for example, if closing documents are unsigned by the party seeking to rely on the TOTE Clause, that they were not in fact ready, willing and able to close the transaction themselves.[15]

Not acting in Good Faith

Generally, a party has an obligation to act in good faith to conclude a bargain that was honestly made. Failure to do so could prohibit them from relying on a TOTE Clause.[16]

This does not necessarily create an implied obligation to alert another party of an impeding deadline when the terms of the agreement are known to all;[17] however, misconduct or breaches of contract which deliberately prevent the opposing party from performing their obligations on time, may result in a finding of bad faith and the offending party may not be able to rely on a TOTE Clause.

To safeguard against breaching a contract which contains a TOTE Clause, there are steps you can take to avoid missing a deadline.

Parties to an agreement should:

1. Carefully consider the obligation they are required to perform and the time it will take to perform such obligation;
2. Build in a buffer to account for performance of a term of a contract that is reliant on third parties;
3. Exclude a closing time. If a contract is silent as to the closing time on the closing date, then the time to perform such obligation may be 11:59 p.m. on the day of closing, depending on the transaction;
4. Document and diarize all critical dates and times for performance of your obligations;
5. Ensure satisfaction of all conditions precedent, if you are financing your purchase, with your lender as soon as possible and well in advance of closing; and
6. Consider setting the funding date with your lender for a day or two before your closing date to avoid the possibility of the lender delivering closing funds late. Paying an extra day or two of interest may well be worth the extra expense if it avoids being in breach of your agreement.

To learn more about how Miller Thomson’s Transactions & Leasing group can assist in providing practical, tailored, and timely advice for your transaction, please do not hesitate to reach out to a member of our team. We look forward to working with you.

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[1] 3 Gill Homes Inc. v 5009796 Ontario Inc. (Kassar Homes), 2024 ONCA 6 [Gill].

[2] Gill, paras 14, 17.

[3] Gill, para 10.

[4] Gill, para 11.

[5] Gill, para 17.

[6] Gill, para 21.

[7] See also: Coco International Inc. et al v Green Infrastructure Partners Inc et al, 2024 ONSC 1616; Di Millo v 2099232 Ontario Inc, 2018 ONCA 1051; Deangelis v Weldan Properties (Haig) Inc, 2017 ONSC 4155; 1473587 Ontario Inc v Jackson, 2005 CarswellOnt 712 (OSCJ), aff’d 2005 CarswellOnt 3282 (ONCA).

[8] Tannery Park Development Corp v Georgilas Investments Ltd, 2006 BCCA 569 [Tannery].

[9] Digger Excavating (1983) Ltd v Bowlen, 2001 ABCA 214, para 15 [Digger].

[10] Digger, para 28.

[11] See: Precision Forest Industries Ltd v Cox, 2023 ABKB 3, para 40.

[12] Brabant c Diminni, 2023 QCCS 1667 (CanLII), paras 163-164.

[13] North Prairie Developments Ltd v New Way Construction Ltd, 2019 SKQB 57.

[14] 1050438 BC Ltd v Penguin Enterprises Ltd, 2019 CarswellBC 3681 (BCSC), paras 54-55; Mikmada Development Group Inc v Conlon, 2018 CarswellOnt 6917 (OSCJ), para 35.

[15] Bayshore Investments Ltd v Wilson, 1975 CarswellOnt 577 (OSCJ).

[16] 801Assets Inc v 605446 Ontario Ltd, 2016 CarswellOnt 8000 (OSCJ), para 63.

[17] 2260695 Ontario Ltd v Invecom Associates Ltd, 2017 CarswellOnt 834 (ONCA),  para 18.