Closing date not essential to enforce real estate deal

The Ontario Superior Court of Justice says a purchase agreement of 48 Ontario residential lots is enforceable, despite the seller’s claim that the unmeetable closing date invalidated the agreement.

Closing date not essential to enforce real estate deal
Fabio Soccol says a recent Ontario Superior Court of Justice ruling may be useful for lawyers who are drafting agreements on properties where the value increases during the development process.

The Ontario Superior Court of Justice says a purchase agreement of 48 Ontario residential lots is enforceable, despite the seller’s claim that the unmeetable closing date invalidated the agreement.

In the case, Rolling Meadows v. 2560262 Ontario Inc., 2018 ONSC 5063, Rolling Meadows Land Development Corporation agreed to sell the lots in Thorold, Ont. to 2560262 Ontario Inc. on Feb. 7, 2017 for $4.3 million, with a deposit of $1.3 million.

The decision in Rolling Meadows reiterates the core elements of property agreements the court will enforce, says lawyer Fabio Soccol, who represented the purchaser of the lots.

Soccol says the decision may be useful for lawyers who are drafting agreements on properties where the value increases during the development process.

“The takeaway is [to] be careful how you draft agreements of purchase and sale. If you really, truly intend there to be a condition precedent that should be clearly and expressly stated in the agreement,” says Soccol who practises at Soccol Law, in Vaughan, Ont.

The agreement between the purchaser and the seller said that the closing date for the lots would be 12 months “following the date that the Vendor has completed permit servicing requirements for the lots and the Vendor’s solicitors have provided to the Purchaser the Property Identifier Numbers for each lot promptly following their designation by the Land Registry Office; provided that in no event will the Closing Date be before November 1, 2017, or after November 1, 2018,” according to the decision.

However, the permit servicing requirements were not met until Jan. 15, 2018, not the stated Nov. 1, 2017 date that would have started the 12-month closing window.

The vendor said that the agreement was “at an end” as of Nov. 1, 2017, since the closing date could not be properly scheduled by Nov. 1, 2018.

In a cross-application, the purchaser said the agreement was valid and enforceable, since there is no express time period for completing the permit servicing.

Ultimately, the judge said the essential elements of the agreement that made it enforceable — property, price and parties — were all “defined with certainty” in the agreement.

“The closing date provision was neither an essential term nor, as the Vendor has admitted, a true condition precedent,” Justice Robert Reid wrote in the decision.

Doug Bourassa, a partner at Chaitons LLP who was not involved in the case, says he suspects many real estate lawyers would be surprised to learn that a closing date is not an essential term of an agreement.

Indeed, Bourassa says, the decision notes that in the negotiations of the purchase agreement in this case, one draft did propose the ability of the purchaser to terminate the agreement if permit servicing requirements were not completed by a certain date — although that did not make it into the signed agreement.

“Most people expect that if a closing date passes, the agreement is concluded. In the circumstances of this case, the court found that the closing date was not an essential term of the contract and that it was open to set a new reasonable date for closing,” Bourassa says. “Particularly where the timing of the transaction is dependent on the occurrence of an external event, counsel would be well advised to explicitly draft provisions addressing the consequences of failing to meet that date.”

Another element of the disagreement was an amendment to the purchase agreement, proposed by the seller’s lawyer in May 2017.

The decision said: “After identifying (?) that the permit servicing requirements could not be completed by November 1, 2017, he wrote that: ‘I think it was intended that completion of permit servicing requirements, not the closing date, would not be after November 1, 2018, such that the closing date would not be after November 1, 2019. Please confirm. If so, we can prepare an amendment. If not, we can prepare a mutual release.’”

A draft amending agreement was not signed and submitted by the sellers until Nov. 6, 2017, the decision said, and the two parties disputed whether there was a formal verbal deadline of Nov. 1, 2017 for the document to be returned.

Although the vendor did not want to proceed with the proposed amendment by November, Reid wrote that the vendor erred in deciding the deal was dead.

“A logical response to those concerns on the part of the Vendor would have been to clearly articulate a deadline, whether November 1st or otherwise, in correspondence between the solicitors, even if the deadline was somewhat artificial,” Reid wrote.

“The absence of a written notice of the deadline serves to call into question the good faith of the Vendor in its reliance on the passing of November 1st as the basis for alleging that the Agreement was frustrated.”

The vendor’s lawyer, Harry Korosis of Chown Cairns Lawyers LLP in St. Catharines, Ont., said he was unable to comment on the decision.

Soccol says he is not aware of any appeal on the case.

Tannis Waugh, a Toronto lawyer who is certified as a specialist in real estate, says she didn’t find the judge’s finding surprising.

“If the parties intended the closing date to be an essential element, they could have indicated that in the contract,” Waugh says.

Waugh referenced in an email that the Supreme Court of Canada case, Bhasin v Hrynew 2014 SCC 71, which shed light on the duty of good faith in contracts. It’s a case, Waugh says, that is “likely to be considered when there is a significant change in value.”

“It may be a warning to real estate lawyers to make sure they act in good faith, particularly surrounding drafting and delivering of amending agreements . . . even if your client changes his mind and refuses to sign, it could still be upheld, as it was in our case,” Soccol says.

“You could see this case being particularly relevant for somebody acting in the sale of development property — that is conditional on taking raw land and taking it through the development process. It’s sort of a warning to the real estate lawyers’ profession to be careful how they cross their T’s and dot their I’s, so to speak.”

Soccol says there are important takeaways from the case.

“You’ve got to be careful acting for the sellers because — you can imagine — let’s say the development process took a lot longer or was a lot more expensive than what the seller thought, their hands would be still be potentially tied if there was no express condition precedent,” says Soccol.

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