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Failure to Close: Deadlines in Agreements of Purchase and Sale

February 13, 2017

A recent decision of the Ontario Court of Appeal highlights the dangers in missing deadlines stipulated in Agreements of Purchase and Sale.[1]

 
The Facts

 

On January 10, 2014, Invecom Associates Limited (“Invecom”) entered into an Agreement of Purchase and Sale (the “Agreement”) with 2260693 Ontario Inc. and two other numbered companies (collectively the “Vendors”) to acquire three properties in Waterloo, Ontario.

 
Invecom had provided a deposit of $400,000 to the vendors. The Agreement stipulated that if the transaction was not completed as a result of the purchaser’s default, then the deposit would be forfeited to the Vendors.


Under section 4.1 of the Agreement, the obligation of Invecom to close was subject to various conditions in its favour. Section 4.3 of the Agreement (as amended) set 5:00 pm on April 15, 2014, as the deadline by which Invecom must give written notice to the Vendors that such conditions had not been satisfied or waived. If Invecom failed to send the written notice, these conditions would be deemed to be satisfied and the parties agree to complete the closing.


At 2:00 pm, on April 15, 2014, Invecom sent the Vendor’s real estate agent a draft Amending and Extending Agreement that proposed to extend the Condition Date until April 30, 2014. The real estate agent forwarded the documents to the vendors but the Vendors did not respond until near midnight that day, well past the 5:00 pm deadline in the Agreement. The Vendors informed Invecom that they would not give a straight extension. Invecom took the position that if the Vendors would not agree to an extension, the deal was at an end.  As a result, Invecom did not close the transaction.


Relying on Section 2.2 of the Agreement, the Vendors argued they were entitled to the deposit. They applied for a declaration that Invecom had breached the Agreement and that the deposit and the accrued interest was forfeited to the Vendors. The application judge granted this declaration.


The Court’s Decision


At the lower court, after reviewing the terms of the Agreement and the events of April 15, 2014, the application judge granted the Vendors' declaration.  The judge found:[2]


The conditions are clear and unambiguous. The notice was to indicate that the conditions were not waived or satisfied. It was to be delivered or transmitted to the individual designated for the purpose by the time the agreement specified. This is not what the proposed Amending and Extending Agreement did. It was an offer. It confronted the vendors with a choice, accept the offer or risk the possibility that notice indicating the conditions were not being waived and were not satisfied would follow and, by the terms of the contract, end the agreement. If the vendors did not respond, the need for a decision returned to the purchaser. It could amend its offer and provide some additional benefit to the vendors in exchange for the extension in the hope that this amended proposal would be accepted . . . Once 5:00 p.m. approached, the decision the purchaser was required to make changed: send the notice as required by the agreement or accept the conditions and prepare to close the purchase.


On appeal, Invecom argued that the draft Extension Agreement served “dual purposes”. First, it was written notice to the Vendors under ss. 4.1 and 4.3 of the Agreement that the conditions in its favour had not been satisfied or waived. Second, it was an offer to avoid the termination of the Agreement by extending the deadline stipulated in section 4.3 and the closing date.


The Court of Appeal did not accept this argument. The court deferred to the application judge’s finding that nothing in the draft Extension Agreement nor its accompanying email contained any language suggesting that Invecom intended the document to serve as written notice under ss. 4.1 and 4.3.


The Court of Appeal also rejected Invecom’s argument that the Vendors had breached their obligation to act in good faith by failing to respond to the Draft Extension Agreement until after the deadline set out in s.4.3 had passed.[3] The court accepted the application judge’s conclusion that "[t]here is no failure of good faith and nothing dishonest in leaving it to the purchasers to look after their own interests when the terms of the agreement are known to all."


The Takeaway


Parties to a contract, particularly where they are sophisticated commercial entities, need to be aware and comply with the deadlines in Agreements of Purchase and Sale. The purchaser or vendor should never assume that the other party will grant an extension after a deadline has already expired. As this case highlights, the other party is not under an obligation to grant such an extension, and can insist on the terms of the contract.  

 

Contact our lawyers for information and advice on your rights and remedies relating to real estate contracts.

 

Disclaimer

 

Suliman Lehner Barristers & Solicitors has prepared this document for information only; it is not intended to be legal advice. You should consult us about your unique circumstances before acting on this information. Suliman Lehner Barristers & Solicitors excludes all liability for anything contained in this document and any use you make of it.

 

References

 

[1] 2260695 Ontario Inc. v. Invecom Associates Ltd., 2017 ONCA 70

[2] 2260695 Ontario Ltd. v. Invecom Associates Ltd., 2016 ONSC 3327

[3] For a discussion of the duty of parties to a contract to act in good faith, see Bhasin v. Hrynew, 2014 SCC 71

 

 


 

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