"Time is of the Essence" Means "Time is of the Essence" #412

By Edward L. Wilson
Lawson Lundell LLP

Many REALTORS® assist buyers in locating and negotiating the purchase of new condominiums in pre-build situations. The developer’s form of contract is generally used and such contracts often provide for staged deposits, often over long periods, which invariably contain “time is of the essence” clauses.

A buyer entered into a typical developer’s form of contract in August 2004 to purchase a condominium in a complex to be built by the developer.¹ The contract provided for a purchase price of $1.26 million and a deposit of 25 per cent, payable in three instalments.

The buyer paid the first instalment of $62,750, but paid $75,000 toward the December (second) instalment of $125,500 one month late. The developer wrote to the buyer in early March 2005 demanding payment of the balance of the December instalment by mid-March, but the buyer failed to pay. A further written demand followed in May, insisting on payment of the balance of the December instalment with interest, plus the third instalment of $125,000, by June 15, 2005.

The buyer made no payment in June and the developer's lawyers sent a letter in late June demanding full payment of the outstanding balance of the deposit by early July. The buyer said he did not receive that letter, but paid $50,500 on July 16.

A further letter was sent by the developer’s lawyers on August 17 acknowledging receipt of the $50,500, stating that a balance of $138,416 remained owing and extending the payment date to August 24. That letter also stated: “This is absolutely the last extension offered to you. If you fail to make the payment by such time, our client has instructed us to terminate the Contract immediately and retain the deposit you have paid on account of damages, without further notice to you.” The buyer said he did not receive that letter, either, and that he was shocked when he learned the developer had purported to terminate the contract on August 30. The buyer said he had understood from discussions with the developer that the July payment of $50,500, with payment of the balance in the fall of 2005, was acceptable. The buyer sued for a declaration that the contract was valid and subsisting.

In reversing the trial decision, the Court of Appeal found the right of the developer to cancel the contract on August 30 was governed by clause 7.7 of the purchase contract, which provided that time was of the essence and that the developer had the option of cancelling or electing to complete the transaction in the event of the buyer’s default.² Unless all amounts were paid when due, the developer could cancel the contract and do so at any time during the continuance of the default, even if the developer had previously elected to complete the transaction. Clause 7.7 was perhaps harsh from a buyer’s perspective, but it was not commercially unsustainable and the parties had agreed to it. The contract was properly brought to an end.

The message for buyers (and their REALTORS®) is simple: deposits must be paid on time. The dates established for payment of deposits are not mere suggestions, but must be complied with strictly; otherwise, the deposit and the contract are at risk. When advising developers, REALTORS® should carefully administer the receipt of deposits and document any late payments, discussions about extensions or waivers of strict compliance of the terms of the contract and demands for payment.

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