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Prompt mortgage funding crucial in hot property market

Buyers purchasing new-builds in a hot real estate market need to take particular care to get their funds ready on time, says Toronto real estate lawyer Daniel Bernstein.

In a recent decision, an Ontario Superior Court judge ruled the developer of a newly constructed townhouse in Mississauga was justified in terminating a four-year-old agreement of purchase and sale (APS) after the purchasers asked for a three-day delay to provide the closing funds.

“Buyers need to get their funds ready on time, especially in a rising market, when the vendor can see dollar signs and the potential of a better offer,” Bernstein, a lawyer with Weltman Bernstein, tells AdvocateDaily.com. “There’s no requirement for builders or vendors to extend, just out of the goodness of their hearts. As long as they are in a situation where their hands are clean and they haven’t done anything improper, they will meet the good-faith requirement.”

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 their $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 afterwards.

However, the judge found the failure to close was entirely the fault of the buyers, and ruled that they had committed an anticipatory breach of contract.

“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.”

Bernstein says the result may seem “harsh,” but that the judge got it right.

“There’s got to be sanctity of contract. In the grand scheme of things, when you understand what your obligations are, you have to proceed on that basis,” he says.

“If the court had ruled the other way and found that the delay did not amount to an anticipatory breach because the agreement was so old or the delay so short, then where does one draw the line? Time of the essence means what it says. Parties to a contract must be able to consistently rely on all contractual terms, otherwise future uncertainty will jeopardize commercial relationships.”

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