A recent case, Xu v. 2412367 Ontario Ltd.,  O.J. No. 3958 (S.C.J.) illustrates the importance of the “time is of the essence” provision in an Agreement of Purchase and Sale. In that case, the plaintiffs agreed to purchase a property in Markham, Ontario to develop a mixed residential-commercial complex for senior citizens. The purchase price for the property was $43,980,000 and the purchasers paid a deposit of $1,000,000 and agreed to pay a second deposit of $2,518,400 by September 30, 2016. The purchasers did not meet the deadline and, on the morning of September 30, 2016, requested an extension of the deadline.
The purchaser’s explanation for the delay was that they had intended to use the proceeds of sale from another real estate project to fund the second portion of the deposit but that by late September the sale on the property had not yet closed. They thereafter started looking for other sources of funding and, by September 30, 2016, had $750,000 available and one of the purchaser’s parents had agreed to provide the balance of the funds for the deposit, but the funds were not immediately available. The vendor advised that it would not agree to the proposed extension and that the full payment of the final installment of the deposit was to be made by 5:00 pm that day. The purchasers did not make any payment prior to 5:00 pm and at 5:40 pm the Vendor advised that it was immediately terminating the Agreement due to the purchaser’s failure to pay the final portion of the deposit and that the $1,000,000 deposit already paid would be forfeited to the vendor.
The purchasers alleged that at a meeting on October 3, 2017, the vendor agreed to revive the Agreement and sell the property to the purchasers. The Agreement of Purchase and Sale contained the following relevant provisions: (1) a provision entitling the vendor to retain the deposit in the event the purchaser was in default; (2) a provision giving each party the right to terminate the Agreement in the event that the other party was in default; (3) the ordinary “time is of the essence” provision; and (4) and a provision requiring any amendments to the Agreement to be in writing.
The court held that given the clear wording of the Agreement, there was no doubt that the vendor was entitled to terminate the Agreement when the purchasers failed to deliver the final deposit payment by 5:00 pm on September 30, 2016, and the Agreement was accordingly properly terminated later that day. The court further held that even if the parties reached a verbal agreement at the October 3, 2016 meeting, the agreement was not valid as it was not made in writing as required by the Agreement. Under the terms of the Agreement, the defendant was entitled to retain the deposit.
This case confirms the common law rule on real estate deposits that unless the agreement indicates an intention that a deposit is not to be forfeited, a deposit is forfeited to the vendor if the purchaser defaults. This case also confirms that the courts require strict compliance with contractual terms in a real estate transaction. This makes it important for potential purchasers to seek professional advice before signing an Agreement of Purchase and Sale.
Blog post written by Associate Lawyer Robert Di Lallo.