Time really is of the essence for homebuyers seeking to close on a real estate bargain.
Longer closing periods are not uncommon for deals involving new builds, but the more time that passes between the execution of an agreement of purchase and sale (APS) and the closing date, the bigger the chance that the market will have moved significantly.
In a cooling market, buyers may be tempted to abandon transactions out of fear they have overpaid or over-extended themselves financially, but a breach of the APS could cost them their deposit. Innocent sellers may even be entitled to further damages to make up the difference between the sale price agreed in the failed deal and any lower bid they ultimately accept.
When property values are rising, buyers still need to fulfill their side of the bargain since it may be in sellers’ interest to seize on apparently small APS breaches to back out of a transaction, with strong prospects for a fresh purchaser willing to pay more.
That’s what happened in the case of Correa v. Valstar Homes (Oakville Sixth Line) Inc., when a nine-minute delay cost the buyers $113,000 to revive the deal after the Court of Appeal agreed with a lower court judge who found that the sellers were within their rights to terminate the original APS over the narrowly missed deadline.
The facts
The case has its roots in February 2020, when the plaintiff spouses agreed to buy a newly built home in Oakville. The closing date was originally set for January 2021, but later extended by the homebuilder to 5 p.m. on April 20, 2021.
When the closing date finally arrived, the couple had trouble securing the funds and were denied a further one-day extension. They eventually obtained alternate financing and their lawyer wired the funds at 4:52 p.m., only for them to arrive with the seller at 5:09 p.m.
The builder invoked a “time is of the essence” clause in the APS to terminate the agreement, but offered to revive the deal if the buyers paid an extra $113,000, claiming that the property had increased by much more than that amount since the APS was signed.
The buyers ultimately paid the money and closed the deal a day later, but then sued the vendor to recover the additional funds, claiming they had made the payment under protest. A Superior Court judge dismissed the buyers’ claim on a summary judgment motion, prompting the couple’s appeal.
The results
At the Court of Appeal, the buyer couple challenged the motion judge’s finding that the seller’s termination of the APS was not unreasonable, unfair or unjust. However, the unanimous three-judge Appeal Court panel could find no error with the conclusions of the lower court judge, who had conceded that his findings “may seem harsh” given how close they came to meeting the deadline.
“It was open to Valstar to be more lenient with the Purchasers in light of their circumstances and intent to close on April 20, 2021. But even accepting that to be the case, I cannot find that Valstar acted wrongly by insisting on compliance with a contractual term to which the parties agreed. I see no reason here to rewrite the parties’ bargain,” he wrote.
In addition, the Appeal Court panel rejected the couple’s argument that the $113,000 revival fee should have been characterized as an improper penalty, writing that there was no basis to interfere with the motion judge’s conclusion that the fee was a term of a fresh contract freely entered into by the parties after the termination of the APS.
The panel dismissed the appeal, writing that the motion judge’s finding — that the buyers failed to prove they were subject to economic duress — was entitled to deference. They noted that the couple did not protest when the fee was paid and had the benefit of legal representation throughout the process.
The lessons
It’s hard to disagree with the motion judge’s admission that the outcome of this case was “harsh” on the buyers. It feels almost unbelievable that a deadline missed by just nine minutes can kill a real estate deal more than a year after it was signed, but this case should serve as a warning to anyone who doubts how seriously judges take the issue of compliance with contractual terms.
In the end, the buyers in this case always had the option of walking away from the deal without paying the extra cash, although this likely would have cost them their deposit. It is also possible that another judge would have had more sympathy for the buyers had the closing date not already been extended once before.
But for buyers, the bottom line is that contractual deadlines are not to be taken lightly. If you intend to complete a deal, you must ensure that your funding is lined up in plenty of time and that all your other obligations under the APS — even minor ones – have been fulfilled as agreed.