Buying a home can be considered one of the largest decisions someone can make in their life and can also serve as a milestone in personal or career development. Buying a house can be challenging when one purchases it from its previous owners or has it constructed by its first owners. It is not uncommon for issues to arise during the home purchase process and after the home has been moved into.
A recent decision from the Court of Appeal for Ontario looks at a situation where the would-be home purchases ran into delays, which caused the vendor to cancel the sale. However, the purchasers said such a reaction was not reasonable in the circumstances and asked the courts to compel the vendors to make good on the sale of the homes. For reasons we will explain, the vendors sought to dismiss the action and keep the deposits from the purchasers.
Purchasers of home miss deadline to complete sale
The respondents, who we will refer to as the purchasers, were three parties who had entered into identical Agreements of Purchase and Sale (“APS”) with the appellant vendors. All three homes, which were adjacent townhomes, had closing dates scheduled for October 1, 2020. The APS documents were signed on December 29, 2019.
The purchasers were family friends who planned to retire together and live as neighbours, so they purchased three adjacent townhomes. The homes each had a purchase price of $369,000. Upon signing the APS, the purchasers each paid a deposit of $5,000 and made further down payments equaling $25,000 each.
The APS stated,
“[T]ime shall be in all respects of the essence provided that the time for doing or completing of any matter may be extended or abridged with respect to the Closing Date by [the vendor] unilaterally or otherwise by an agreement in writing signed by [the vendor] and the purchaser by their respective solicitors.”
The court also pointed to a Document Registration Agreement (“DRA”), which stated, “If the purchase agreement does not specify a closing time and a release deadline has not been specifically inserted, the release deadline shall be 6:00 p.m. on the closing date.”
Issues pop up prior to the closing date
Two days before the purchases were set to close, the purchasers were denied the opportunity to conduct home inspections and claimed they still needed to receive a copy of a deficiency list as requested. Because of this, they asked for the closing date to be extended by a few days. The vendors refused this request. The vendor had also failed to sever the properties as expected, which would have required the homes to be registered to each purchaser.
The transactions did not close on the original closing date, though it was not the fault of the purchases. The bank they purchased were using ran into delays. At 5:11 p.m. on the closing date, the vendor’s real estate counsel faxed a letter to the purchasers’ lawyers indicating they were terminating the APS. The vendors refused to close the transactions in the following days and attempted to return the mortgage funds delivered the morning after the closing date. They did, however, keep the deposits.
The purchasers filed a motion asking a judge to find the vendor in breach of the APS and allow them to purchase the homes. The motion judge ruled that the closing time was midnight on October 1 and that the vendor’s message that the APS was being terminated at 5:11 p.m. was premature. The vendor appealed, leaning on the language of the APS that said time was of the essence and that the timeline indicated in the document was to be strictly enforced. The vendors said that when the purchasers failed to meet the terms of the APS by delivering funds on the closing day, they forfeited the down payments.
Should the vendors be compelled to sell the homes to the purchasers?
The court cut to the chase, stating it did not accept the vendor’s submission. For starters, the DRA contradicted the deadlines set out by the vendors. Even if that was not the case, the court stated that the motion judge was correct in not allowing the vendor to rely on a line in the APS that said “time is of the essence.” This is because there’s no specific time set out in that phrase. The court referenced a 2018 decision that dealt with the exact language the vendor was relying on, writing,
“A “time is of the essence” clause is engaged where a time limit is stipulated in a contract. The phrase “time is of the essence” means that a time limit in an agreement is essential such that breach of the time limit will permit the innocent party to terminate the contract…. [A] “time is of the essence” clause does not serve to impose a time limit but rather dictates the consequences that flow from failing to comply with a time limit stipulated in an agreement. [Emphasis added.]”
The court paraphrased this by stating that the mere presence of a “time is of the essence” language is only of limited assistance to the courts on a contract that is otherwise silent on a deadline (The DRA had a deadline, but the APS did not).
The court also found that the motion judge was entitled to rule that the vendors were unwilling to close on the agreed-upon date and were premature in terminating the contract. While the bank was late in delivering the funds, this occurred during the COVID-19 pandemic, and things tended to move slowly at that time. For these reasons, the court dismissed the appeal.
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