Remember that time when you made a reservation for a restaurant but later forgot about it or changed your mind right before? And then you breathed a sigh of relief knowing the restaurant will never know who you are, and you will not have to pay a fine for going back on your word.

Although a rather large leap, the same cannot be said for real estate transactions. Almost invariably in Canada, a contract of sale for real estate property will expressly include a time is of the essence clause. If you change your mind about purchasing the property or cannot secure suitable financing before the closing date, you may be liable for damages and risk the contract coming to an end.

Time Is of the Essence Clause in Real Estate

However, there are several important aspects to note:

• You cannot rely on the time of the essence clause unless you have demonstrated that you are ready, willing, and able to complete the agreement. If both parties are not ready to close on a real estate transaction, neither party can immediately invoke the clause to bring an action for specific performance, damages, or contract termination.
• You must proceed diligently to fulfill your obligations and avoid acting in bad faith, which includes interfering with the other party’s ability to meet their responsibilities.

Exceptions to the Time of the Essence Clause

1. A time of the essence clause in real estate contracts can be negated in several ways:

   1. Waiver: If one party takes action that makes it clear the strict contractual provisions will not be enforced. For example, if both parties agree to extend the closing date, there is a waiver.

   2. Election: When one party breaches the contract—such as failing to obtain the necessary financing by the closing date—the other party may elect to extend the real estate closing instead of enforcing the clause.

   3. Bad Faith: If the transaction fails due to one party’s lack of action or bad faith, that party cannot rely on the time of essence clause to terminate the contract.

So just remember—take more care and time in entering into a real estate contract than you would for choosing where to have dinner tonight. Unlike a dinner reservation, failing to meet the time of the essence requirement in a real estate transaction can result in contract termination, financial losses, and even legal disputes.

For more information or any other questions regarding contractual clauses for real estate, please contact our real estate lawyers.

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”