“Time is of the Essence” – Means What It Says

The Ontario Court of Appeal recently released an important decision examining the legal effect of a “time is of the essence” clause, in a case where the buyer missed a closing deadline by mere minutes. It also clarified when a court can exercise equity-based discretion, to relieve a party from the normal consequences of its failure to adhere strictly to agreed time limits.

The buyer agreed to purchase three newly constructed homes from the seller under three separate agreements of purchase and sale. Two of the deals closed. When the third purchase was scheduled to close, the seller was not in a position to close and requested an extension, to which the buyer agreed.  When the new closing date was set, the time for completion of the sale was set for 3pm and the extension agreement contained a “time is of the essence” clause.  Despite the seller’s repeated reminders about the deadline for submitting purchase funds on the new closing date, the buyer was 35 minutes late in doing so. The seller considered this a breach of the agreement and returned the buyer’s deposit and declared the deal terminated.

The lower court judge agreed with the seller’s position. On appeal, the Court of Appeal took the opportunity to provide guidance on the general operation and impact of a “time is of the essence” clause. It stated that whenever a contract includes a “time is of the essence” clause, it means the time limits embodied in the deal are considered essential. If one party breaches any of them, the other party is entitled to terminate the contract.

That said, in some cases the court may have a residual, equitable jurisdiction to grant relief to the party who has missed a contractual deadline. Such judicial intervention must be justified by the evidence – for example, demonstrated unfairness or unjust action on the seller’s part. The court must also consider the equities in light of the facts; these include the parties’ level of sophistication and any correspondence they exchanged, especially if it included reminders about the deadline.

In this case, the lower court judge had correctly considered the background of the parties’ overall dealings, together with their past conduct and interactions. This included repeated reminders by the seller – which the buyer acknowledged – about the pending deadline. Having missed it anyway, the buyer was not entitled to relief from the natural repercussions, after the equities of the situation were balanced. See 3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes), 2024 ONCA 6.

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