TIME OF THE ESSENCE clauses in Real Estate Contracts
We have all experienced the horrible consequences of being late on occasion.
This especially holds true for real estate. Timing in a real estate conveyance is critical. In the standard CBA/BCREA contract of purchase and sale one of the important terms of the contract is paragraph 12, the “time is of the essence” clause.
12. Time will be of the essence hereof, and unless the balance of the cash payment is paid and such formal agreement to pay the balance as may be necessary is entered into on or before the Completion Date, the Seller may at the Seller’s option, terminate the contract, and in such event the amount paid by the Buyer will be absolutely forfeited to the Seller in accordance with the Real Estate Services Act on account of damages without prejudice to the Seller’s other remedies.
Do not take this clause for granted! It not only stresses the importance of the timing in which the contract must be completed but also the consequences of being even “a minute too late.”
What does “Time of the Essence” mean?
It means that the parties must perform their obligations strictly within the time frame stipulated in the contract.
Failure to act within said time frame will constitute a breach of the contract, giving the other party the right to pursue his or her legal remedies forthwith.
When time is of the essence, the consequences of being a minute too late can be disastrous to the offending party.
Losing the Deal
In Gill v Bal 2017 BCSC 2015 the Supreme Court re-enforced the importance of not being late. The contract stated that the transfer documents were to be registered by 4:00 p.m. on the closing date. However, at 4:00 p.m. the Buyers were not in a position to close as their lawyer had not yet received the money in his trust account to enable him to register the conveyance pursuant to the standard CBA undertakings which are made part of the contract pursuant to paragraph 14. At 4:19 p.m. the Seller required the executed transfer documents to be returned as the Buyers were not in a position to close and had missed the 4:00 p.m. deadline. At 5:36 p.m. the Buyers were finally able to close, having received the mortgage funds. The Seller refused to complete. The court held that the Buyers were in breach having not been ready to close at 4:00 p.m. as required by the contract. The court awarded the Seller not only the deposit but additional damages as the Seller had to obtain additional financing in order to close on another property.
Forfeiting the Deposit
One of the basic principles of contract law is that damages are calculated on the actual loss suffered by the innocent party. An exception to this rule exists in the context of a real estate deposit. In British Columbia, if a purchaser defaults or is otherwise unable to complete a real estate purchase he is liable to forfeit his or her deposit even if there was no actual loss suffered by the seller. In Tang v Zhang 2013 BCCA 52, the BC Court of Appeal confirmed that the Seller was entitled to keep a $100,000 deposit even though the Seller suffered no actual loss as he was able to resell the property at a higher price. The court considered the deposit to be earnest money (a term borrowed from US jurisprudence) and therefore subject to forfeiture upon default by the buyer.
Extending the Completion Date
Sometimes circumstances occur where it is impossible for one of the parties to complete on the closing date. If the parties agree to extend the closing date, then the time of the essence clause must be expressly reinstated to give sufficient notice to the other party that the new closing date is being relied on. It is not sufficient to state “all other terms and conditions to remain the same” (Ambassador Industries v Kastens 2001 BCSC 484).
If timing of the contract is critical to a party, anytime the contract is amended or extended, the time is of the essence clause should be reasserted for further assurance that the timing of the deal remains an essential part of the contract.
Waiving Time is of the Essence
Like all other terms, time being of the essence can be waived.
If by words or conduct a party waives the time is of the essence clause, timing of the contract will cease to be strictly enforceable.
In such case the party is given a reasonable time to perform her contractual obligations (Whittal v Kour 1969 CanlII 701 (BCCA) cited in Salama Enterprises (1988) Inc v Grewal 1990 CanLII 1677 (BCSC)).
The Moral of the Story
In today’s hot market where property values are sky high, a purchaser needs to make sure that she and her lawyer get everything done on time! A purchaser stands to lose not only her dream home but potentially a substantial deposit as well.
A realtor who cavalierly assumes that a seller “will be reasonable” in the face of a request for a last minute, short term extension may be in for a rude awakening when the seller digs his heels in and refuses to agree to it (perhaps a back-up offer is in the wings), resulting in the realtor’s client losing the deal and forfeiting her deposit in the process! (guess who’s getting sued after that happens?)
Remember the words of William Shakespeare which are apropos in every real estate transaction:
“It is better to be three hours too soon, than a minute too late!”
P A Z D E R LAW CORPORATION,
Real Estate Lawyers
DISCLAIMER: The foregoing is for information purposes only and does not constitute legal advice. The reader is urged to consult a lawyer prior to acting or relying on the information contained herein. Such information can change over time due to many factors. In addition the reader’s own particular legal or financial circumstances may affect his or her ability to make use of this information.