In the complex world of real estate transactions, deadlines and conditions are paramount. But what happens when a deadline is missed? Does it automatically void the agreement, or can the parties’ subsequent conduct breathe life back into the deal? The recent Ontario Court of Appeal decision in VanderMolen Homes Inc. v. Mani sheds light on these critical questions, offering valuable insights for both buyers and sellers navigating the intricacies of real estate law.
VanderMolen v. Mani – A Pre-Construction Home Purchase Dispute
This case concerned a failed purchase of a pre-construction home in Exeter, Ontario. Rennichan K. Mani and Seeniya Joseph (the “Appellants”) entered into an agreement of purchase and sale with VanderMolen Homes Inc. (the “Respondent”) for a price of $937,400. The agreement, dated January 13, 2022, included a $5,000 initial deposit and a scheduled closing date of August 31, 2022. The agreement was conditional, with a deadline of January 20, 2022, for the fulfillment of conditions and a further deposit of $88,740 due upon waiver.
A critical issue arose when the Appellants proposed extending the conditional period to January 26, 2022. This extension offer, stipulated as irrevocable until January 21, 2022, at 11:59 p.m., was accepted by the Respondent on January 22, 2022—one day beyond the specified deadline. Despite this, the Appellants subsequently waived the conditions and remitted the second deposit on January 26, 2022.
Subsequent communication between the parties was limited. While the Respondent attempted to contact the Appellants regarding design selections, no response was received. The Appellants later claimed they assumed the deal was off due to the lack of communication. However, they did not formally request the return of their deposits.
In August 2022, the Respondent initiated contact regarding a pre-delivery inspection. The Appellants did not explicitly indicate their intention not to close at this time. The inspection was scheduled and subsequently cancelled by the Appellants. On August 17, 2022, the Appellants’ legal counsel informed the Respondent of their intention not to complete the purchase.
The Respondent subsequently sold the property to a third party for $705,000 and commenced legal action to recover damages for breach of contract.
Motion Judge’s Decision: Finding a Breach of Real Estate Contract
The motion judge in the Superior Court of Justice ruled in favour of the Respondent, finding that the Appellants had breached a binding agreement. The judge addressed three key issues:
- Genuine Issue Requiring a Trial: The judge determined that there was no genuine issue requiring a trial, as the evidence, including cross-examination transcripts and documentation, allowed for a fair determination on the merits.
- “Time Is of the Essence” Clause: The judge considered the impact of the “time is of the essence” clause in the context of the missed deadline for accepting the extension offer.
- Damages: The judge awarded damages to the Respondent, calculating the amount based on the difference in sale price, carrying costs, and the deposits already paid by the Appellants.
The motion judge relied on precedent cases that established that “time is of the essence” clauses make adherence to deadlines essential, allowing the innocent party to terminate the contract upon breach. However, the judge distinguished this principle by referencing other cases highlighting that a non-repudiating party’s actions determine the effect of a breach. If the non-repudiating party treats the contract as valid, it remains in effect for both parties.
The motion judge concluded that despite the missed deadline, the Appellants’ subsequent actions, such as waiving conditions, paying the second deposit, and later requesting the property be relisted to mitigate damages, demonstrated that they considered the agreement binding.
The Appeal: Contesting the Validity of the Real Estate Agreement
The Appellants appealed the decision, raising three main arguments:
- The motion judge erred in treating a “conditional agreement” expiry as analogous to the repudiation of a “firm and binding contract”;
- The motion judge erred in failing to recognize that the expiry of the offer deadline terminated the conditional agreement; and
- The motion judge erred in considering the parties’ subsequent conduct.
Ultimately, the Court of Appeal upheld the motion judge’s decision and dismissed the appeal for the reasons set out below.
Conditional vs. Firm Contract
The Court found that the Appellants’ argument that the agreement never became firm was unpersuasive. The Court emphasized that the Appellants’ subsequent actions of waiving conditions and paying the second deposit solidified the deal, making it binding as of January 26, 2022.
Expiry of Offer Deadline
The Court acknowledged that the Respondent’s late acceptance of the extension offer constituted a repudiation. However, the Court affirmed the motion judge’s finding that the Appellants did not elect to treat the contract as terminated. Instead, their continued performance under the contract, particularly the payment of the second deposit, indicated their intention to keep the agreement alive. The Court confirmed that a repudiatory breach does not automatically terminate a contract; the innocent party must elect to treat the contract as ended.
Subsequent Conduct
The Court upheld the admissibility of evidence of subsequent conduct. While acknowledging that such evidence is typically admissible only when a contract is ambiguous, the Court found it relevant in this case due to the dispute surrounding the missed deadline. The Court emphasized that the conduct was consistent, mutual, close to the time of contracting, and not self-serving, making it valuable evidence of the parties’ objective intentions.
Implications for Ontario Real Estate Transactions
The VanderMolen v. Mani decision offers valuable guidance for anyone involved in real estate transactions in Ontario, particularly concerning the interpretation and application of contractual deadlines and the impact of subsequent conduct. Several key principles emerge from this case:
“Time Is of the Essence” Is Not Absolute
Real estate contracts frequently include “time is of the essence” clauses, which emphasize the critical nature of meeting specified deadlines. These clauses ensure that transactions proceed promptly and provide certainty for all parties involved. However, VanderMolen clarifies that these clauses are not absolute. A missed deadline, even in the presence of a “time is of the essence” provision, does not automatically render the contract void.
The court’s decision underscores that the conduct of the non-breaching party following the missed deadline is a crucial factor in determining whether the contract remains enforceable. If the non-breaching party acts in a way that suggests they are still treating the contract as valid, they may be deemed to have waived their right to rely on the missed deadline as grounds for termination. This principle highlights the importance of carefully considering the implications of one’s actions after a potential breach has occurred.
Actions Speak Louder Than Words
This case powerfully illustrates the principle that actions can often speak louder than words in contractual disputes. Even if a contractual deadline is missed, subsequent actions by the parties can demonstrate a clear intention to proceed with the agreement, effectively waiving the initial breach. In VanderMolen, the Appellants’ decision to waive conditions and remit the second deposit after the Respondent’s late acceptance of the extension offer was a key factor in the court’s finding that a binding contract existed.
Communication Is Key
Clear and timely communication is paramount in any real estate transaction, especially when dealing with potential breaches or missed deadlines. If a party intends to treat a missed deadline as grounds for terminating the agreement, they must communicate this intention clearly and promptly to the other party. Ambiguous or delayed communication can lead to confusion and potentially detrimental legal consequences.
In VanderMolen, the Appellants’ failure to clearly communicate their alleged belief that the deal was off, coupled with their subsequent actions, significantly weakened their case. Had they promptly and unequivocally expressed their intention to treat the contract as terminated due to the late acceptance, the outcome of the case might have been different.
Campbell Litigation: Providing Top-Tier Real Estate Litigation Services in Kitchener-Waterloo
The VanderMolen case underscores the importance of seeking legal advice when dealing with potential breaches of a real estate agreement. At Campbell Litigation, we help clients understand their rights and obligations while providing practical, trusted advocacy in real estate disputes. Led by Richard Campbell, our team has over 40 years of experience providing clients with innovative legal solutions in a variety of real estate litigation matters, including aborted deals, vendor and agent misrepresentations and real estate agent negligence. To discuss your matter with our office, please call 519-886-1204 or contact us online.
