"Time is of the Essence" Consideration #215

Feb 01, 1994

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By Gerry Neely
B.A., LL.B.

One of a licensee's more difficult tasks is setting the date for completion of the sale of property, which is in the process of being subdivided, and to provide for an enforceable extension of closing should registration of the subdivision plan be delayed. Several recent decisions have revolved around the interpretations of clauses giving the vendor or the parties the right to extend the date for closing.

While the developer wants this flexibility, a purchaser, who is prejudiced by delay, will only be able to terminate the contract if the purchaser takes the correct steps in response to multiple extensions of closing not authorized by the contract. What follows may lead you to conclude you have joined Alice and the cheshire cat in Wonderland.

A contract, under discussion in an Ontario case, contained a clause that gave the developer the right to extend the closing date to a date designated by the vendor or the vendor's solicitor.

The vendor extended the closing date, but then followed with seven further extensions over a period of about three months. Three purchasers declined to close, two of whom had raised no objection until they were advised of the eighth extension. All three purchasers argued that since the contract referred "to a date" rather than to "a date or dates", the vendor could only exercise the right to extend the date once.

The judge's agreement with this argument did not help the two purchasers.

The fact that one party is in breach of a fundamental term of a contract does not mean that the contract comes to the end. The other party may elect to keep it in force or to declare it ended. In this case, the two purchasers inaction in the face of the seven extensions was held by the judge to be their election to keep the contract force.

This gave the vendor the right to set the final date for closing contained in the eighth extension. The vendor's notice of this new date when given to the purchasers reinstated "time is of the essence". The two purchasers refusal to close then became their breach of contract which entitled the vendor to damages.

In contrast to the inaction of the two purchasers, the third purchaser objected to the fourth extension. He established a new date for closing which the judge found was reasonable. By doing this the purchaser had established time as being of the essence. This time it was the vendor who rejected the new date for closing, and it was this rejection that enabled the third purchaser to be relieved of any obligations to complete.1

***

In a British Columbia case the clause in the Contract of Purchase and Sale provided for a fixed completion date. If delay was likely, a new date for finalization of the subdivision was to be mutually agreed upon between the vendor and purchaser.

Delay did occur and the vendor requested a twenty-two day extension which the purchaser refused to grant. The vendor then fixed a completion date, approximately six weeks after the date set in the contract, and advised the purchaser of that date. When no response was received the vendor commenced an action for specific performance or damages, put the property back on the market, completed the subdivision and eventually sold the property at a loss.

The purchaser's argument was that the vendor was. unable to complete on the closing date and since the contract stated that time was of the essence, the purchaser was entitled to terminate the contract.

The court rejected the argument, saying that the purchaser's refusal to negotiate with the vendor was a breach of the contract.

The judge's comments with respect to the "time is of the essence" argument was that the extension clause removed the "time is of the essence" requirement. As a result, the vendor acted properly in setting a new and reasonable date upon which the closing would take place and received damages in the amount of $18,500.

In passing the judge also dealt with the inability of the parties to mutually agree upon a new date by saying that it would be open to the court under the circumstances to fix a reasonable time for completion by both parties.2

  1. Wong vs. Reemark, Sterling E Ltd., 26RPR (2d) 93.
  2. Beks vs. Share, S.C.B.C., Victoria Registry 1297/93, January 16, 1994. (I am advised that the Flack vs. Sutherand case referred to in Column #214 has been appealed).

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