The Canadian Bar Association
Real Estate

No fluidity in contracts

A recent Superior Court case in which a narrowly missed deadline sank a four-year-old property deal should serve as a reminder of the rigidity of contracts, says Toronto real estate lawyer Andrew Fortis.

In the decision, an Ontario Superior Court judge ruled the developer of a newly constructed townhouse in Mississauga was justified in terminating the agreement of purchase and sale (APS) after the buyers came in just three days late with the funds to close.

“People sometimes get the idea that contracts have an element of fluidity to them, but if that were true, they would be meaningless. They are supposed to be rigid,” Fortis, a partner with Hummingbird Lawyers LLP, tells AdvocateDaily.com.

The buyers in the case signed the $360,000 APS back in 2012 and had already taken possession of the condo unit by way of interim occupancy a few weeks ahead of the scheduled closing. However, the decision says they only received their mortgage approval the day before the closing date, and it became clear on the day itself that the funds would not be ready in time. Their lawyer asked for a three-day delay, but the seller denied the request, terminated the APS and forfeited the $20,000 deposit.  

The buyers then applied to the court for specific performance of the APS, arguing that the sellers had exercised the “time of the essence” clause of the agreement in bad faith because they knew the funds would arrive so soon later.

However, the judge found the failure to close was entirely the fault of the buyers:

“It would be tempting to let principles of fairness and equity direct a finding that a three day delay in the closing in the four year history of the Agreement, is a minor breach resulting in a financial windfall to the builder and, therefore, the Agreement should be upheld,” he wrote.

“However, in my view, it would be wrong in law to find that insisting on compliance with a term of the agreement, agreed to by both parties with the assistance of counsel, amounts to bad faith depriving a party of the ability to strictly enforce an agreement where time is of the essence. Such a determination would mean that no party could insist on strict compliance of the term of an agreement because to do so would or might amount to bad faith. This would throw the law of contract into chaos by creating uncertainty in the enforcement of contracts.”

Fortis says the facts reminded him of a famous Hong Kong case in which a purchaser lost a deposit on an apartment after arriving 10 minutes late with payment due to a traffic jam on the way to the vendor’s lawyer’s office. The case went all the way to the U.K. Privy Council, where the court ruled the termination and forfeiture were justified.  

“A line was drawn, and as harsh and unfair as it appears, there has to be some rigidness to obligations under a contract, and there have to be consequences when they are breached,” Fortis says.   

He says it’s unlikely the builder would have taken the same action if the GTA real estate market had stagnated rather than exploded in the previous four years. But at the same time, the intervening period gave the purchasers plenty of time to arrange a mortgage, Fortis adds.  

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