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Ontario Superior Court Provides Guidance on the Strict Nature of a Time is of the Essence Clause in an Agreement of Purchase and Sale

Apr 1, 2019 | Blawg 

A recent decision by the Ontario Superior Court provides some clarification on the strict nature of a time is of the essence clause in an agreement of purchase and sale. In Fortress Carlyle Peter St. Inc. v. Ricki’s Construction and Painting Inc. a purchaser was granted specific performance of an agreement of purchase and sale after the vendor voided the transaction when the purchaser missed the closing deadline by 16 minutes.  The court held that the vendor could not rely on a time is of the essence clause in the agreement after it failed to act in a timely manner itself.

The Facts

Fortress Carlyle Peter St. Inc. (“Fortress”) entered into an agreement of purchase and sale (the “APS”) to purchase a property (the “Property”) from Ricki’s Construction and Painting Inc. (“Ricki’s”) in order to develop a condominium project. The APS provided for a closing time of 6:00pm on August 13, 2018 (the “Closing Date”) and contained a time is of the essence clause.

Before entering into the APS, Fortress reviewed the leases encumbering the Property to ensure that it could demolish the existing buildings and proceed with construction of the condominium project. The leases stated that the tenants were to vacate the premises on 90 days’ notice if the landlord planned to demolish the Property.

Under the APS, Ricki’s covenanted that the materials provided to Fortress were the only documents with respect to the leased premises.  Ricki’s also agreed that Fortress would be given estoppel certificates for the Property on or before August 8, 2018.

By August 8, 2018, only one tenant remained in the Property and the parties agreed that Ricki’s was required to provide Fortress with an estoppel certificate for this tenant. Ricki’s failed to provide the estoppel certificate on August 8, 2018 and did not do so until the Closing Date.  The estoppel certificate provided by Ricki’s was inaccurate and did not reflect the terms of the lease previously disclosed to Fortress.

Fortress asked for delivery of an accurate estoppel certificate before the Closing Date. An accurate estoppel certificate was delivered at 4:52pm on the Closing Date, eight minutes before the Land Titles registry office closed.

Fortress’ bank delivered the funds to its lawyer to close the transaction by 5:52pm on the Closing Date.  However, because Fortress could not demonstrate that is was ready, willing and able to close, Ricki’s stated that Fortress had breached the APS.  As a result, Ricki’s refused to close the transaction and retained the deposit paid by Fortress.

Fortress commenced a claim against Ricki’s for specific performance of the APS and moved for summary judgment.

Fortress argued it was ready, willing and able to close at 6:00pm on the Closing Date but that Ricki’s had waived its right to insist that time was of the essence when it failed to meet its obligations under the APS regarding the estoppel certificate.  Fortress also argued that Ricki’s had acted in bad faith by failing to deliver an accurate estoppel certificate in a timely manner. 

Ricki’s took the position that its delivery of the estoppel certificate on the Closing Date was a “small issue” and that the inaccurate estoppel certificate was an “inconsequential clerical error”.

The Court concluded that Fortress acted in good faith and was ready, willing and able to close on at 6:00pm on the Closing Date.  The Court also held that Ricki’s conduct regarding the estoppel certificate was much more than a “small issue” and was, in fact, deceitful.  It found that the estoppel certificate was a critical factor in Fortress’ development plans, and that the failure to deliver it accurately and on time was a serious issue. Because Ricki’s acted in bad faith and had waived time being of the essence by its own conduct, it was precluded from relying on the time is of the essence clause. Fortress was granted judgment for specific performance of the APS.

The Takeaway

The Court viewed the conduct of Ricki’s as deceitful, which serves as a reminder to come to court with clean hands. This decision underscores the fragile nature of a time is of the essence clause in an APS. Courts typically enforce these clauses strictly; however, if a party does not adhere to the deadlines set out in the agreement, the party will lose its right to rely on the strict nature of the clause.

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