The Collapsing Deal
Deals collapse for a variety of reasons. Your job is to preserve the right of the purchaser to claim for specific performance and the fullest amount of damages, or the right of the vendor to claim the deposit and further damages.
Often you will not find out that the deal will not complete until quite late in the transaction. It may not become clear until the vendor’s lawyer fails to return the transfer and other documentation, or you receive a call from the purchaser’s lawyer to say there will be no money flowing.
Given the tight timelines, this can be the day before or the day of completion. You should have standard letters ready to customize for such a contingency. Appendix FF contains two letters, one for a vendor’s and one for a purchaser’s lawyer - both drafted with this in mind. At the beginning of a collapsing deal, it often appears that the deal will complete eventually. Send the letters in any event to preserve your client’s rights. Even in the case of an anticipatory breach where the party has clearly indicated their intention not to complete, a party seeking to keep the contract alive must take care to establish that they are ready, willing, and able to complete at the time fixed for completion.
One of the essential clauses of every contract of purchase and sale is that time is of the essence and courts do enforce it strictly. In Tannery Park Development Corporation v.Georgilas Investments Ltd., 2006 BCCA 569, the purchaser was negotiating with its lender on the terms of an undertaking, with the knowledge of the vendor, until just prior to 5:00 p.m. on the date of completion. As a result, the lawyers missed the 3 p.m. deadline to register their documents at the Land Title Office. The Court of Appeal reversed a trial ruling and upheld the default of a $200,000 deposit. The court remarked that the proposition that these experienced solicitors had any expectation at any time that the registrar would accept documents for registration after 3:00 p.m. is untenable. The advent of e-filing with extended hours may alleviate some of the timing concerns, but be aware that the standard form contract still specifies a time by which closing must occur.
Beware of the “helpful” realtor. Only if time is of the essence can the failure of a party to perform on time constitute a breach. The realtors, thinking they are being helpful, will call each other and “arrange” for the deal to complete later. They may not see the necessity of a written extension. Remember where, by words or conduct, a party waives strict compliance with time limits, time will no longer be of the essence and the other party will have a “reasonable time” to perform (see Whittal v. Kour (1969), 71 W.W.R. 733 (B.C.C.A)). An extension of time must be in writing and must restate that time remains of the essence for the new dates (see Ambassador Industries Ltd. v. Kastens, 2001 BCSC 484).
If an extension has been agreed to by the parties, ask the realtors to document the extension, reiterating that time is of the essence. If they do not, you will need to get instructions from your client to act as their agent and write a letter to the other side or their lawyer (if they are represented) setting out the new date and reinstituting time of the essence.