Written By Simon Crawford and Meg Tweedlie

Overview

"Better three hours too soon than a minute too late" wrote William Shakespeare in The Merry Wives of Windsor—a line that would have fit well in the judgement of the Ontario Court of Appeal in its recent decision in 3 Gill Homes Inc. v. 5009796 Ontario Inc. (Kassar Homes),¹ a case that turned on the application of the so-called "time is of the essence" clause. We see these clauses in most transactional agreements with critical deadlines, but they don’t get much press until one party fails to do something on time. Then they get circled in red as evidence of the intention of the parties that everything was, of course, to happen on very strict timelines in accordance with the agreement.

Of course, things don’t always go according to plan once an agreement is signed. Timelines slip. Parties extend or stretch critical deadlines, either by further agreement conduct or (sometimes) ambivalence. So, when is the "time is of the essence" clause enforceable? Is it a wall or is it a rolling stop?

The 3 Gill Homes case is a fair reminder that it can be strictly interpreted, and that courts will not always be persuaded that an equitable intervention is merited.

First, a Primer

While there is no presumption that time is of the essence,² parties to a contract may create such requirement by inserting a "time is of the essence" clause or similar precise language.³ However, enforcement of the clause is not absolute, in that a party can only rely on such a clause if they meet a number of common law conditions, including, being "ready, desirous, prompt and eager" to carry out the agreement, not being the cause of the default they seek to take advantage of, and not having waived the provision or otherwise acquiesced to the delay.⁴ Where strict reliance on a "time of the essence" clause would be inequitable or unjust, courts may exercise discretion to provide for equitable remedies.⁵ In addition, courts have found that the party seeking to enforce a "time is of the essence" clause must also be acting in good faith and have not acted in an unfair and unjust manner.⁶

With this background, let’s look at the facts in 3 Gill Homes.

Facts in 3 Gill Homes

The appellant, as purchaser, and the respondent, as vendor, entered into three agreements of purchase and sale for residential homes. While two of the agreements successfully closed, the third agreement (referred to in this post as the Purchase Agreement), was terminated by the respondent when closing funds were delivered by the appellant 35 minutes past the closing deadline. 

The transaction was initially scheduled to close on August 31, 2021. However, due to construction delays, this deadline was missed. Despite the existence of a "time is of the essence" clause in the Purchase Agreement, neither party terminated the transaction. The Purchase Agreement was later amended on November 15, 2021 to amend the closing date to January 28, 2022. Again, this amendment included a "time is of the essence" clause.

Leading up to the January 28 closing, there were numerous instances of communication between the appellant and respondent, both directly and through counsel, that confirmed the 3:00 p.m. closing deadline on January 28. In January 2022, Mr. Kassar, the principal of the respondent, reminded Mr. Gill, the principal of the appellant, that the funds for the transaction had to be paid on the closing date by 3:00 p.m. or the deal would be terminated. This was again confirmed in an email between counsel on January 25. Shortly thereafter, on January 27, the appellant requested an extension of the closing to January 31, 2022, and this request was denied by the respondent who again reminded the appellant that the purchase price was to be paid by 3:00 p.m. the next day or the transaction would be terminated.

On 2:47 p.m. on the day of closing, counsel for the appellant advised counsel to the respondent that funds had been attained and the banking was underway. However, at 3:10 p.m., when funds still had not been delivered, counsel to the respondent advised that they had been instructed not to proceed with closing as the 3:00 p.m. deadline had been missed. When funds were received by the respondent 35 minutes after 3:00 p.m., the respondent did not accept the funds and treated the Purchase Agreement as terminated. At the heart of the decision were the following clauses from the Purchase Agreement:

14.02(d) The Purchaser expressly acknowledges and agrees that the Vendor shall not be requested nor required to release the transfer/deed to the Property for registration electronically unless and until the balance of all funds due on Closing, in accordance with the Vendor’s statement of adjustments, are remitted by certified cheque to the Vendor’s Solicitor (or in such other manner as the Vendor’s Solicitor may authorize or direct), and correspondingly received by the Vendor’s Solicitor by no later than 3:00 P.M. on the scheduled Closing Date.

…

17.04 Time shall be of the essence of this Agreement in all respects, and any waiver, extension, abridgement or other modification of any time provisions shall not be effective unless made in writing and signed by the parties hereto or by their respective solicitors who are hereby expressly authorized in that regard.

The Slippery and Precarious Slope

Following the termination of the Purchase Agreement, the appellant sought, among other things, a declaration that the respondent had breached the Purchase Agreement and that the contract was unconscionable.

The application judge found that it was not unfair for the respondent to enforce the deadline in light of the "time is of the essence" clause. In support of this view, the application judge cited various case law supporting the strict adherence to timelines when there is a "time is of the essence" clause and where parties are sophisticated in the business of real estate. The application judge also cited the November 15 amendment as evidence of the intention of the parties to treat deadlines as formal.

In response to the appellant's claim that the Purchase Agreement was unconscionable, the application judge found that this was not the case, as the previous two transactions between the parties closed without incident, suggesting no unequal bargaining power or circumstances of unconscionability.

Finally, the application judge considered the court's equitable jurisdiction to relieve against the strict enforcement of a "time is of the essence" clause. It concluded that equitable relief from the breach of such clause requires reliance on some behavior that merited non-strict compliance, such as unfair or unjust conduct by the party seeking to enforce the clause. The application judge mused, "If the Court were to excuse the default in this case, when would a person in the position of Kassar Homes be permitted to terminate the agreement? One hour after the stipulated time? Two hours? One day? Intervention by the court in the face of contractual language agreed to by capable contracting parties is the beginning of a slippery and precarious slope." The court of appeal upheld the decision.

Takeaways

3 Gill Homes serves as an important reminder that the "time is of the essence" clause in a contract is much more than just standard language; it is a principle strictly enforced by the courts who, absent the circumstances where equitable relief may apply, are reluctant to rewrite an agreement between two sophisticated parties. A missed deadline, even by 35 minutes (or less!), may very well lead to the lawful termination of the contract. While punctuality may be a virtue of the bored, in the context of real estate transactions, it is a virtue worth having.

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