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Can a Proposed Amendment to an APS be Deemed Notice of Termination if not Accepted?

In a recent decision, the Ontario Court of Appeal confirmed that a buyer of land had forfeited a hefty deposit to the seller, after failing to adhere strictly to the terms of their agreement respecting notice.

The buyer agreed to purchase three properties from the seller for a price of $27,250,000, and paid $400,000 as a deposit. The agreement contained several conditions of closing, all in the buyer’s favour.

First, it set 5 p.m. on a specified “Condition Date” as the deadline by which: (1) any conditions were to be satisfied; or else (2) the buyer could waive any conditions “by written notice to the Vendors”.  That written notice called for “delivery, facsimile transmission, electronic mail in PDF format or other means of electronic communication” to certain specified persons.

The agreement went on to provide that if the buyer did not give such written notice by the Condition Date, then the conditions were “deemed to have been satisfied and waived”. At that point the parties were required to complete the closing pursuant to its terms.

On the other hand, if the buyer did give timely notice that it considered the conditions unsatisfied and not waived, the agreement would be terminated and the deposit returned. The exception was if the deal failed to close because of the buyer’s own default, in which case the entire deposit would be forfeited to the seller.

In these scenarios, the contract stipulated that time was to be “of the essence,” which in law means that any time limits would be strictly adhered to.

Yet the deal failed to close as scheduled, because the parties disagreed on the legal effect of the buyer’s unilateral attempt to extend the Condition Date. Although the deadline had been mutually set for April 15, 2014, at 5 p.m., on that date the buyer threatened to abort the deal if the seller did not grant a further 2-week extension of the conditional period. The buyer sent the demand to the seller’s real estate agent by text message, and then by forwarding a Draft Extension Agreement.  The buyer made no attempt to comply with the agreement provisions relating to the waiver/satisfaction of the conditions, nor with the requirements for written notice to be given in the stipulated manner.

The seller refused to grant the extension, and the buyer refused to close. The seller purported to keep the $400,000 deposit, claiming it was the buyer’s own breach that had scuttled the deal.

By way of an initial court application, the seller was successful in obtaining a court declaration confirming the buyer’s default and the forfeiture of the deposit.

The Court of Appeal confirmed that prior ruling. The Condition Date had clearly lapsed without the buyer giving written notice that it considered the conditions satisfied or waived. At that point, the deeming provision was triggered, along with the buyer’s obligation to complete the deal. The buyer’s Draft Extension Agreement had no effect on this outcome:  it was merely a new offer. It did not serve the “dual purpose” of both extending the deadline and giving the required written notice, as the buyer claimed.

This was a significant agreement reached by sophisticated parties with the benefit of legal advice. The seller was entitled to insist on strict compliance and there was nothing to suggest it had breached its good faith obligations by standing firm while the buyer ignored the clear contractual terms. The buyer had been obliged to give written notice in a specified manner by a stipulated deadline, which it failed to do. Its subsequent refusal to complete the deal put it in breach, entitling the seller to retain the deposit. See: 2260695 Ontario Ltd. v. Invecom Associates Ltd., 2017 ONCA 70.