By Rachel Puma
Robins Appleby
Time is a funny thing – and when it comes to legal transactions, a vitally important thing.
This is underscored in the recent case of Correa v. Valstar Homes (Oakville Sixth Line) Inc., 2024 ONSC 3616. Here, the Ontario Superior Court of Justice addressed the strict enforcement of “time is of the essence” clauses in real estate transactions.
On Feb. 16, 2020, the Correas (purchasers) entered into an Agreement of Purchase and Sale (APS) with Valstar Homes (Oakville Sixth Line) Inc. (vendor) to purchase a newly built home in Oakville, Ont. The closing date was extended by the vendor in the normal course pursuant to the Tarion Addendum, and ultimately was scheduled for April 20, 2021. On closing, the purchaser’s closing funds were received nine minutes after the deadline, and the court confirmed that the purchaser was in default, entitling the vendor to terminate the deal.
Time is of the essence
The APS specifically referenced that the closing was to occur on 5 p.m. on the closing date, and had a “time is of the essence” clause.
On the morning of the closing date, the purchasers had not obtained their financing – an unfortunately all too frequent occurrence in new build deals. The purchasers claimed that the bank needed an appraisal before funding, and their appraiser was denied access to the property the morning of closing. It is unclear whether the vendor denied access to the appraiser. However, in the absence of admissible evidence, the court was more focused on why the appraiser arrived so late and why this task was left until the last minute. Truth be told, in the freehold new build world, developers are building and working on the homes until the last minute, so it is very possible the home was not ready for an appraisal long before the closing date (or even the day before the closing date); however, that evidence was not before the court to consider.
The lawyers for the purchaser and vendor had various discussions on the day of closing, with the purchaser’s lawyer requesting an extension, and the vendor’s lawyer responding diligently and confirming that no extension would be granted. Importantly, the vendor’s lawyer consistently made it clear that the deal was to close by 5 p.m.
The purchasers were ultimately able to obtain funding from a private source. The purchaser’s lawyer alerted the vendor’s lawyer to this at 4:36 p.m. and confirmed funds would likely arrive shortly after 5 p.m. – in fact, the funds were wired at 4:52 p.m. and arrived in the vendor’s lawyer’s account at 5:09 p.m.
The vendor terminated the APS, but offered to revive the contract if the purchasers paid an additional $100,000 plus HST, citing an increase in the property’s market value. The purchasers agreed and closed the deal the very next day. But the story does not stop there.
Legal action
Despite the purchasers’ acceptance and compliance with the revival terms, they later claimed that the vendor acted in bad faith by refusing to close despite receiving the funds just nine minutes late, and that the vendor imposed an illegal penalty on the purchasers for requiring a $100,000 plus HST revival fee. The court rejected all of three of these arguments.
The court reaffirmed the significance of “time is of the essence” clauses, stating that even minor delays can justify termination of the contract. The judge distinguished this case from More v. 1362279 Ontario Ltd. (Seiko Homes), 2023 ONCA 527, where a lack of a specific closing time and the vendor’s unresponsiveness and apparent unwillingness to close, led to a different outcome. In Correa, both parties understood and agreed upon the 5 p.m. deadline, making the nine-minute delay a breach of the APS. The court found no evidence of bad faith on the vendor’s part, as it was entitled to strictly enforce the contract’s terms and was clear about what was required.
With respect to the revival fee, where a contracting party requires a defaulting party to pay a fee that is “extravagant and unconscionable” in comparison with the real damages the innocent party would face, it may be seen as a “penalty” that is not valid at law. However, the court correctly pointed out that this fee was not part of the APS. Rather, the parties were negotiating new terms which would be applied to revive the APS, and which were agreed upon by both parties. The court also found there was no duress in this negotiation or revival – the pressure to revive the APS arose from the purchasers’ own breach of the APS, not any impropriety by the vendor.
Consequently, the court dismissed the purchasers’ claim and upheld the additional payment.
Takeaway
This case underscores the critical importance of adhering to “time is of the essence” clauses in real estate transactions, and that courts are likely to uphold such clauses strictly, provided there is no evidence of bad faith or extenuating circumstances beyond the control of the parties involved, even where such a result may seem harsh. Just because an outcome feels unfair to one party does not mean it is legally improper.
Rachel Puma is Partner at Robins Appleby. robinsappleby.com
