Homebuyers had to pay $113,000 in penalties after their payment arrived 9 minutes late. Buyer … [+]
Missing Deadlines Makes Buying A Home Even More Expensive
With mortgage rates lingering above 6.5%, buying a home remains significantly more expensive than just a few years ago. As a research note from the Consumer Financial Protection Bureau notes, the mortgage payment on a $400,000 loan rose over $1,200 from interest rate trough to peak (January 2023 to October 2023). With home buyers already facing higher monthly payments and increased overall purchasing costs, the last thing they need is an unexpected punitive fee that further strains their finances and makes buying a home even more expensive. Two cases from Canada serve as a cautionary tale for home buyers and demonstrate that even a minor delay—a mere nine minutes in one case—can lead to exorbitant extra costs.
A Costly Misstep Increases Home Buying Cost For A Canadian Couple
A recent article in The Toronto Star discusses the 2020 case of Ivy and Alvin Correa. The couple signed a contract with Valstar Homes to purchase a pre-construction home in Oakville, Ontario, for $1,440,000. The builder had extended the closing deadline to 5:00 PM on April 20, 2023. Due to last-minute financing challenges, the Correas’ lawyer wired the funds that day at 4:52 PM. However, the funds did not arrive until 5:09 PM—a nine-minute delay that triggered what is known as a “time is of the essence” clause within the contract between Correa and Valstar.
Valstar Homes, adhering strictly to the contract, terminated the agreement for breach of contract and later offered to revive the deal for an additional fee of $113,000. Although this extra 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, while Valstar contended that it was within its rights to insist on a timely closing. 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.
Another Case, Similar Result
The Correa case is not an isolated incident; the strict enforcement of “time is of the essence” clauses is not limited to one jurisdiction. 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, Kassar Homes, terminated the contract—and the Ontario Court of Appeal unanimously upheld that decision.
Time Is Of The Essence Clauses In The United States
While the cases discussed pertain to Canadian real estate law, time is of the essence clauses also play a critical role in U.S. real estate transactions. TOE clauses establish that contract deadlines are not merely 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 TOE clauses in the U.S. varies by jurisdiction. For example, in Colorado, real estate contracts often include default deadlines for key actions — such as earnest money deposits, inspections, and closing dates — but these deadlines are not automatically strict unless a TOE clause is explicitly included. 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.
Understanding how TOE clauses operate in Canada and the U.S. underscores the importance of clarity in real estate contracts. Whether purchasing in Toronto or Denver, buyers and sellers must know how deadlines are treated and ensure compliance or negotiate provisions that allow for some flexibility when necessary.
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 simple — certainty and predictability are paramount in contracts, and any deviation from the agreed schedule can trigger severe consequences.
Key Lessons For Home Buyers (As Well As 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 high-cost, high-stakes 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 volatile real estate market, where high mortgage rates already push home buying costs upward, strict adherence to contractual deadlines is more crucial than ever. The Correas’ experience is a powerful reminder that even a brief delay can trigger termination, hefty revival fees, and protracted legal battles.
As you navigate your own real estate transactions, remember to plan ahead, communicate clearly, and leave no room for delay.