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Can "Time is of the Essence" Be Implicit?

In a recent Ontario case, the buyer agreed to purchase a commercial property, consisting of a Petro-Canada gas bar and convenience store, together with three other tenanted buildings (housing a McDonald’s, a Tim Horton’s, and a Service Canada office, among other things). Its agreement with the seller initially provided for a June 1st closing date, and indicated that “time is of the essence”.  However, subsequent negotiations resulted in a series of five amending agreements that extended the closing date; all five indicated that time continued to be of the essence.

The deal did not close on the last of the contemplated dates, and the parties failed to reach any further amending agreements in writing.  Nonetheless, over the following weeks they continued to negotiate; in doing so they proceeded as if the transaction was still valid, overlooked the lapse of various requisition dates, and set new future closing dates.  The last and final one was for August 3rd;  however – quite importantly – the documentation setting that date did not specify that “time is of the essence”, an omission which later became a key issue between the parties.

In the days leading up to August 3rd the parties each conducted themselves as agreed:   inventory was taken the day before, and the buyer provided a significant cash float and inquired about delivering further funds.  However, the morning of closing the bank financing temporarily fell through.  The seller, claiming the August 3rd date was firm, refused to close in escrow or extend further, and instead tried to tender its documents as evidence of its willingness to close.  Ultimately, the deal fell through.

The buyer still wanted to proceed, and asked the court for an order for specific performance, forcing the deal to go ahead.

In doing so, the buyer first had to resist the seller’s claim that time was of the essence in the deal, and that given the buyer’s failure to close on August 3rd, the seller was entitled to the usual remedy as innocent party:  to treat the contract as at an end and sue the buyer for damages.

In response, the buyer took the position that there was no actual written agreement specifying an August 3rd closing; rather this date had been informally agreed as part of a series of mutual extensions, each of which had essentially waived the “time is of the essence” element.

The court agreed with the buyer:  the “time is of the essence” aspect had indeed been waived during negotiations.   Also, while conceding that the essentiality of time could sometimes be inferred from the circumstances surrounding an extension, the court in this case found nothing to suggest that it continued to be part of this deal or that, because of the circumstances, it had been implicitly renewed.    For example, the fact that inventory was taken a day before closing, as required by a clause in the agreement, did not make time of the essence; this was not a determinative step that affirmatively required the deal to close the next day.

Next, the court turned to the merits of the buyer’s request for specific performance.  It accepted evidence that the property was special since it provided the buyer with a good opportunity to carry on a business while having good tenants in the other buildings.  It noted the buyer had also put a great deal of effort into obtaining the property, and had agreed to pay $215,000 more than the initial $3.8 million asking price.   Overall, an order of specific performance would not be unjust in this case, and the court granted partial summary judgment on the issue accordingly. See 2329131 Ontario Inc. v. Carlyle Development Corp., 2013 (ONSC).