Is Time Still of the EssenceBy Kormans LLP
Every standard printed form of Agreement of Purchase and Sale (APS) contains the following “Time is of the Essence” clause:
“TIME LIMITS: Time shall in all respects be of the essence hereof provided that the time for doing or completing of any matter provided for herein may be extended or abridged by an agreement in writing signed by Seller and Buyer or by their respective lawyers who may be specifically authorized in that regard.”
“Time is of the Essence” is applicable to the Irrevocable Date, the Completion Date, the Requisition Date, and the Condition Date. This means that there is no unilateral right to extend any of these dates and the settled law is that the dates and times expressed in these provisions must be strictly adhered to.
However, the recent Court of Appeal decision in More v. 1362279 Ontario Ltd. provided for some leeway in the practical interpretation and use of this clause.
In this case the Buyers’ closing mortgage funds were delayed due to COVID-19 protocols. The Buyers’ lawyer received and certified the funds on the date of closing, however, his attempt to wire the funds to the Seller’s lawyer failed.
Shortly after 5:00 p.m. on the closing day, the Sellers’ lawyer sent a letter to the Buyers’ lawyer terminating the APS in reliance on the “Time is of the Essence” clause. Even though the closing funds were deposited into the trust account of the Seller’s lawyer the following morning, the Seller refused to close and in summary judgment motions argued that the Buyers were in breach of the APS when they failed to close by 5:00 p.m. on the closing date. The motion judge found that there a minor glitch owing to delays that could have been expected during the pandemic appears to have been “pounced on” by the Seller in an unexpected fashion, and as a result the failure of the Seller to be flexible in adjusting the closing date reflected a lack of goodwill.
The Court of Appeal agreed that the “time is of the essence” clause could not be relied upon by the Seller to claim the APS had a 5:00 p.m. deadline since there was no specific time set out in the APS. The Court of Appeal dismissed the appeal and concluded that it was open to the motion judge to find that purchase transaction should be honoured with the lawyers working together to close the following day despite minor delays in the delivery of closing funds.
This decision demonstrates that even though an APS states that time is of the essence, meaning that no extensions of time will be allowed, the Courts expect the parties to cooperate and attempt to complete a transaction in good faith, and that if they do so any delays that were out of their control should not be pounced on by the other side to terminate the transaction based upon a strict interpretation of the “Time is of the Essence” clause.
Given the increasing difficulty we face in current market conditions to successfully close transactions, this case demonstrates the importance of having the right legal team in place to ensure transactions are completed in a timely fashion and in demonstrable good faith.
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