Time of Essence Clause in Real Estate Transactions

July 16th, 2015 by

By Victoria Yang

Remember that time when you made a reservation for a restaurant but later forgot about it or changed your mind right before? And then you breathed a sigh of relief knowing the restaurant will never know who you are and you will not have to pay a fine for going back on your word.

Although a rather large leap, the same cannot be said for real estate transactions. Almost invariably in Canada, a contract of sale for a piece of real estate property will expressly provide that time is of the essence. So if you change your mind about purchasing the property or cannot attain suitable funding in time for the closing date, for instance, you may be liable for damages and have the contract come to an end.

However, there are several important things to note:

You cannot rely on the clause unless you have demonstrated that you are ready, willing, and able to complete the agreement. In other words, if both parties are not ready to close on a real estate transaction, neither party can immediately rely on the clause to bring an action for specific performance, damages, or termination of the contract. Similarly, you must proceed diligently to fulfil your obligations, and not act in bad faith by interfering with the other party’s ability to fulfil their responsibilities.

Further, a clause providing for time of essence in a contract of sale can be negated largely in three different ways:

  1. Waiver: If one party in a contract takes actions that makes it clear that the strict contractual provisions will not be enforced. For instance, if both parties agree to extend the closing date by two days then there is a waiver.
  2. Election: When one party breaches the contract and for instance does not have the requisite financing completed on the closing date, the other party could agree to extend the closing date.
  3. Bad faith: As discussed earlier, if the transaction fails to close because of one party’s lack of action or bad faith, that party cannot rely on the time of essence clause.

So just remember – take more care and time in entering into an agreement to purchase real estate than you would for where will you have dinner tonight.

For more information or any other questions regarding real estate transactions, please contact our real estate lawyers.

 


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