"Time is of the essence." That clause is in all our AREA contracts. We talked about it in an earlier email.

Time is of the essence means that if a seller is ready to close and a buyer isn't, the seller does not have to give the buyer an extension, not even five extra minutes! That's a powerful clause!

What happens to "time is of the essence" if, on the closing day, neither party is ready to close? 

Although we don't like getting too technical in these emails, the Court considered this question in a recent important Alberta case, Precision Forest Industries Ltd v. Cox.

Precision brought an action against Kevin Cox for breaching a contract of an offer of purchase of sale between the parties. The offer was subject to the condition that the buyer obtain mortgage financing from Farm Credit Canada. 

Justice James Neilson found that "Cox was not in the position to tender transfer documents as of the possession date, nor was Precision in a position to confirm that financing had been obtained by that date." Therefore, neither party was ready, willing and able to close on the specified closing date. "When that date passed by, time was no longer of the essence. The contract and the transaction remained in effect, such that it would close within a reasonable period of time, unless either of the parties formally remade time of the essence." 

Sometime after the closing date, Cox repudiated the offer, saying he did not want to proceed with the deal. 

In established case law, when neither party is ready, willing or able to close the agreement by the stated possession date, the agreement is not at an end. Either party can provide reasonable written notice establishing a new completion date and confirming and reinstating time of essence, but that was not done in this case.

The court determined that the contract was valid and enforceable, and that it was breached by Cox.

So, to summarize:

1. When time is of the essence and neither party is ready to close on the agreed date, the agreement remains in effect and should close within a 'reasonable time.' 
2. Either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party.
3. The important other side to #2 above is that when a party who is not ready to close on the agreed date and who subsequently terminates the transaction without having set a new closing date, and without having reinstated time of the essence, such termination will itself breach or repudiate the agreement.

Lessons Learned

• If this is your situation, why wait on the fuzziness of #1 and its "reasonable" future closing date. 
• Once your client can close, re-capture the precision of a fixed date by serving notice as set out in #2.
• And, don't take this on yourself, get your client's lawyer to do this. 

Protect yourself.

Cheers,

Barry

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