Be aware that transaction deadlines are usually ironclad
When it comes to a transaction involving the sale or purchase of a home, timing is key.
Virtually every real estate purchase agreement contains a clause which says that time is of the essence of the contract.
What does this really mean? My all-time favourite court decision serves to explain: Union Eagle Ltd. v. Golden Achievement Ltd. The case originated in Hong Kong when it was a British colony and ended up before the Privy Council in London, which was the highest court in the British Commonwealth.
The case centred around the principles of good faith, greed and time being of the essence.
The dispute arose out of a seemingly ordinary real estate agreement in which Union Eagle agreed to purchase a luxury flat in Hong Kong from Golden Achievement for $4.2 million (Hong Kong), about $550,000 (Canadian) in 1991, at the conversion rate that then applied. The buyer paid a 10 per cent deposit, about $55,000 (Canadian).
Closing was to take place by 5 p.m. on Sept. 30, 1991, and time was stated to be “of the essence of the agreement.” If the purchaser failed to comply with any terms of the agreement, the deposit money was to be forfeited and the property could be resold.
Late on the closing day, the buyer’s solicitor sent a messenger with the cheques for the purchase money to the office of the seller’s solicitor, but, unfortunately, the messenger was caught in traffic and arrived 10 minutes late. The seller instructed the solicitors to rescind the contract. The envelope and contents were returned to the messenger.
The purchaser sued for completion of the transaction or return of the deposit. Declining to adopt the principles of fairness or equity, the trial court, the appeal court and, ultimately, the Privy Council, all ruled in favour of the seller. They relied on practical business considerations and ancient authority to uphold the strict wording of the contract.
Should the courts have intervened to give a purchaser a break when it was only 10 minutes late in delivering funds?
For better or for worse, the Privy Council said that the rules of equity and fairness will not come to the rescue when a seller terminates a contract because the buyer failed to comply with an essential written condition as to time.
A few months after the court’s decision, the flat was sold for $19.5 million (Hong Kong) (about $2.5 million Canadian), five times the original purchase price and eight times the original cost in March 1991, and all because of a 10-minute delay. The seller was allowed to profit by $15 million (Hong Kong) because of the delay.
Writing in the Hong Kong Law Journal in 2000, Toronto lawyer Mitchell Kowalski suggested that the decision was wrong, and the courts should have relied on the concepts of good faith, unconscionability and the old maxim that the law does not concern itself with trifles.
Fortunately, some Canadian courts, in recent years, have adopted a kinder, more gentle approach to deadlines, but parties to real estate contracts should still be aware of the risk of a strict application of time deadlines in their agreements.
Should the courts have intervened to give a purchaser a break when it was only 10 minutes late in delivering funds?