Is Time Really of the Essence in a Real Estate Transaction?

Seller cannot rely on time is of the essence clause to serve as a time limit if there is no time specified.

By Slonee Malhotra

In contract law, a time is of the essence clause confirms that timely performance is an essential obligation where a time limit is set out. Failure to execute on time may amount to a material breach of the contract. Most real estate transactions include such a clause in the Agreement of Purchase and Sale (“APS”) in referencing a closing date. However, can sellers rely on this clause to terminate an agreement? 

In the recent Court of Appeal for Ontario case, More v. 1362279 Ontario Ltd. (Seiko Homes), 2023 ONCA 527, the court addressed the issue of sellers attempting to utilize the time is of the essence clause to terminate real estate transactions for a short delay in closing. 

The respondents were purchasers of three townhomes built and sold by the appellant vendor 1342279 Ontario Ltd. (“Seiko Homes”). Each transaction had an identical APS, with a closing date scheduled for October 1, 2020. No specific time for completion was outlined in the APS. 

On the closing date, the transactions failed to close because the appellant’s receipt of the mortgage funds was delayed past 5:00 p.m. through no fault of the respondent. The sellers’ real estate counsel faxed a letter to the buyers’ real estate counsel terminating the APS at 5:11 p.m. on the closing date. The funds were deposited into the trust account of the seller’s lawyer the following morning. The bank acknowledged the delay in forwarding the funds and blamed a combination of COVID-19 protocols, fewer staff, reduced hours, and the end-of-month increase in transactions. 

In the ensuing days, the appellant refused to close the deal. Seiko Homes attempted to return the mortgage funds but retained the deposit that the respondents had provided in accordance with the APS. Litigation commenced, and summary judgment motions were brought by both parties. The buyers sought specific performance, and the seller’s sought dismissal of the action and forfeiture of the deposits. 

The motion judge found that the buyers were ready, willing, and able to close the transactions while the seller acted prematurely, terminating the transaction. He awarded costs to the buyers on a substantial indemnity basis in the amount of $17,500. 

On appeal, Seiko Homes argued that the motion judge erred in finding it was in “anticipatory breach” of the agreements when it faxed the letter terminating the transaction shortly after 5:00 p.m. The appellants submitted that the motion judge erred in finding the proper closing time was midnight on October 1, 2020, since the APS contained a “time is of the essence clause” and the Teraview System does not register transfers after 5:00 p.m. The appeal court disagreed with these submissions and agreed with the motion judge. The 5:00 p.m. deadline was contradicted by the Document Registration Agreement, which the seller’s lawyer delivered to the buyer’s lawyer. This document stated if the APS was silent on the time of closing, which it was, the deadline for “release” of funds from escrow would be 6:00 p.m. on closing day. 

Further, the court of appeal relied on the findings in Di Millo v. 2099232 Ontario Inc. 2019 ONCA 1051 (“Di Millo”); since the APS was silent on the deadline, the seller could not impose a time is of the essence clause as this clause does not serve to set a time limit but rather dictates the consequence that flows from failing to comply with an agreed time limit stipulated in the APS.

The appeal was, therefore, dismissed. This case holds significant implications regarding the applicability of time is of the essence clauses, specifically when the APS is silent on the closing time. The seller cannot rely on a time is of the essence clause if there is no particular time to follow. Further reiterating the Di Millo case stipulating that a time is of the essence clause cannot be relied upon to serve as a time limit. Instead, the purpose of the clause is to dictate consequences if a specified time limit is not followed.