Time of the Essence Clarified

The Seller sold certain lots of industrial land to the Buyer. Their Agreement of Purchase and Sale obliged the Buyer to build an industrial building on the property within 30 months of closing, failing which the Seller had an Option to Purchase the land back at essentially the same price at which it was sold. The Agreement did not specify any time period within which the Seller could exercise that Option.

When the Buyer did not build on the property within 30 months as agreed, it obtained a one-year extension, which also lapsed without construction starting.

About three months after that extended deadline, the Seller notified the Buyer it wished to exercise the Option. The Buyer then asked for another year extension, which the Seller refused. After some negotiations around a mortgage that had been placed on the property without the Seller’s consent, at the 6-month point the Seller gave a second notice, and started an application for specific performance. The Buyer countered by stating that the Seller’s failure to tender prevented it from asking the court for this remedy.

An earlier judge concluded that: (1) the timing of the Seller’s notices, being either three or six months later than the first opportunity to exercise the Option, were outside the notice period provided for in the Agreement; and (2) they did not comply with the Agreement’s “time is of the essence” clause.

The Appeal Court disagreed with these findings. In fact, it concluded that the Seller had given notice within a reasonable time.

The judge had misunderstood the effect of a “time is of the essence” clause; it simply means that a specified time limit in an agreement is essential, and that a breach of it will automatically allow the innocent party to terminate the contract. The clause does not itself impose a time limit, but rather dictates the consequences that flow from failing to comply with a time limit that is stipulated in an agreement.

Here, there was no specified time-limit that applied to the Option, so the “time is of the essence clause” was not even engaged, much less breached as the judge had incorrectly found.

But even without a time-limit stipulated, it was implicit that the Seller had to exercise the Option within a reasonable period, which assessment depended on the particular circumstances. In this case, the Buyer did not appear interested in timely compliance, since it did not even start building within 30 months as required, and asked for two extensions spanning a year each. At no time did the Buyer complain that the Option had expired. Even at the six-month point, the Seller’s notice had still been given within a reasonable time.

As for the Seller’s claim for specific performance, it was not defeated by his failure to tender. A party is only entitled to specific performance if he or she is ready, willing and able to close. Tendering is usually the best way to do this, but it is not a prerequisite in all circumstances – especially if it is clear from words or conduct that the other party has repudiated the agreement.

In this case, the Seller was relieved of the obligation to tender when the Buyer clearly communicated a decision not to proceed with the transaction. However, while the Seller was not required to tender in these circumstances, it was still required to show he was ready, willing, and able to close before it could request specific performance. This readiness was demonstrated by the Seller’s affidavit evidence which showed it had purchased a $500,000 mortgage that the Buyer had improperly put on the property without the Seller’s consent. The prior judge was thus wrong to conclude there was “no evidence” of the Seller’s readiness and willingness to close.

As for the propriety of a specific performance remedy, the law confirms that it should only be granted if damages are inadequate, and there is evidence that the property is “unique” or that its substitute would not be readily available. Here, there was no substitute property in another location that would meet the goals of the subdivision plan already in place. It is exactly because of that intended plan that the Seller entered into the Option agreement. The Appeal Court therefore ordered that the Seller could exercise the Option, and granted the claim for specific performance. See: Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051.