The Costly Consequences of Missing Real Estate Deadlines
Protracted waiting time of 9 minutes results in home buyers losing an estimated $113,000; learn strategies to prevent such financial setbacks.
With mortgage rates hovering above 6.5%, buying a home is more expensive than just a few years ago. Homebuyers are already grappling with higher monthly payments and increased purchasing costs, and the last thing they need is an unexpected fee that further strains their finances. Two Canadian cases serve as a cautionary tale, demonstrating that even a minor delay can result in exorbitant extra costs.
A Penalty for Lateness
In 2020, Ivy and Alvin Correa sought to purchase a pre-construction home in Oakville, Ontario, for $1,440,000. The builder extended the closing deadline to 5:00 PM on April 20, 2021. Due to last-minute financing challenges, the Correas' lawyer wired the funds at 4:52 PM. However, the funds didn't arrive until 5:09 PM—a nine-minute delay that triggered a "time is of the essence" clause within the contract between Correa and Valstar Homes.
Valstar Homes, adhering strictly to the contract, terminated the agreement for breach of contract. They later offered to revive the deal for an additional fee of $113,000. Although this cost was steep, the Correas decided to pay, likely because the home's value had appreciated by approximately $600,000 between the time the contract was signed and the closing date.
More than a year later, the Correas petitioned a Canadian court to recover their $113,000, claiming that Valstar had acted in bad faith by terminating the agreement due to the funds being received only nine minutes late. They argued that the court should not strictly enforce the "time is of the essence" clause. However, the judge dismissed their claim, ruling that Valstar was entitled to take its stance and that there was nothing improper about Valstar relying on its legal rights under the agreement.
A Familiar Outcome
The Correa case is not an isolated incident. A similar principle was upheld in 3 Gill Homes Inc. v. Ontario Inc. In this case, a sophisticated purchaser was 35 minutes late in delivering closing funds for one of three contracts. Despite previous deadlines being treated flexibly in earlier transactions, an amended agreement established a firm 3:00 p.m. deadline. When the funds arrived 35 minutes late, the builder terminated the contract, and the Ontario Court of Appeal unanimously upheld that decision.
Time is of the Essence Clauses in the United States
Although these cases pertain to Canadian real estate law, "time is of the essence" clauses also play a significant role in U.S. real estate transactions. These clauses establish that contract deadlines are not mere guidelines but material terms of the agreement. If a party fails to meet a specified deadline, the other party may have the right to terminate the contract or seek legal remedies.
The enforcement of "time is of the essence" clauses in the U.S. varies by jurisdiction. In some states, real estate contracts may include default deadlines for key actions, such as earnest money deposits, inspections, and closing dates. However, these deadlines are not automatically strict unless a TOE clause is explicitly included. In Colorado, for example, contracts often include default deadlines, but they are not automatically considered TOE unless explicitly stated.
Even with a TOE clause, courts may consider factors such as good faith, past leniency in enforcing deadlines, and the degree of harm caused by the delay before strictly enforcing termination rights. Courts have upheld TOE clauses in many U.S. states when they are clearly stated and mutually agreed upon. However, they may also provide flexibility in cases where minor delays occur without bad faith or significant harm to the other party.
Some real estate contracts in the U.S. also include cure periods—short grace periods that allow a party to correct a missed deadline before facing breach consequences. This offers a balance between ensuring contract enforcement and preventing overly harsh outcomes due to minor delays.
The Unyielding Nature of Home Buying Deadlines
Both cases highlight a critical point: Deadlines are often non-negotiable when a contract includes a TOE clause. Courts consistently enforce these provisions, especially when both parties are experienced in real estate transactions. The principle is straightforward—certainty and predictability are paramount in contracts, and any deviation from the agreed schedule can trigger severe consequences.
Lessons for Home Buyers (and Sellers)
- Understand Every Clause: A "time is of the essence" clause means that every deadline is fixed. There's no room for flexibility unless explicitly provided for in the contract.
- Plan Ahead: In today's volatile real estate market, ensure you factor in extra time for transfers and financing arrangements. Don't rely solely on last-minute solutions.
- Document All Communications: Clear, documented communication can help demonstrate good faith, but it won't override the strict terms of the contract.
- Negotiate a Curing Provision: Negotiate a clause that allows for a short grace period to remedy minor delays, thus mitigating the risk of breach.
- Be Meticulous: Every minute counts when large sums are at stake. Prioritize punctuality and precision throughout the transaction process.
The Upshot
In today's high-cost, high-stakes market, adhering to contractual deadlines is more crucial than ever. The Correas' experience is a stark reminder that even a brief delay can trigger termination, hefty revival fees, and protracted legal battles. As you navigate your own real estate transactions, prioritize planning, clear communication, and punctuality.
Enrichment Data:
Missing a contract deadline with a "time is of the essence" (TOE) clause in real estate transactions can have severe consequences, as illustrated by the Correa and other similar cases. Here are the key consequences:
- Termination of the Agreement: If a party fails to meet the deadline specified in the contract with a TOE clause, the other party may have the right to terminate the agreement.
- Legal Disputes: The failure to meet deadlines can lead to legal disputes.
- Additional Costs: Even if the agreement is revived, the buyers may be required to pay additional costs.
- Court Rulings: Courts will strictly enforce TOE clauses if they are clearly stated in the contract and both parties agree.
- Potential Appeal: While it is possible to appeal against the termination if there are extenuating circumstances, such as those experienced during the COVID-19 pandemic, this principle applies only to rare situations.
- To avoid the costly consequences of missing real estate deadlines, homebuyers should pay close attention to the homebuying tips related to punctuality and meeting contractual timelines.
- The Correas' case illustrates the importance of understanding and adhering to the 'time is of the essence' clause in a real estate contract, as failing to do so can lead to significant financial penalties.
- In the Correas' case, the 'time is of the essence' clause was triggered when their lawyer's funds did not arrive by the agreed-upon time, leading to the termination of the real estate contract and a requirement to pay an additional fee.
- Mitigating the risks of missing deadlines can be achieved by negotiating a curing provision in the real estate contract, allowing a short grace period for correcting minor delays before facing breach consequences.
- Homebuyers and sellers must prioritize punctuality and precision throughout the homebuying process, given that every minute counts, especially in a high-cost, high-stakes market.