Does The Duty Of Good Faith Create An Obligation To Agree To Extensions Of A Closing Date?

• Published date: 24 November 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Real Estate and Construction, Contracts and Commercial Law, Trials & Appeals & Compensation, Real Estate
• Law Firm: Fogler, Rubinoff LLP
• Author: Ms Samantha Green and Teodora Prpa

Since 2014, the Supreme Court has released a trilogy of cases finding and expanding on the duty of good faith in contractual performance. Parties to an agreement of purchase and sale are under a duty to act in good faith and have an obligation to take all reasonable steps to complete the contract.¹ The majority of real estate contracts have clauses providing that time is of the essence. This article considers whether the duty of good faith changes parties' obligations on closing of a real estate transaction. When faced with a request to extend the closing date, is the counterparty obliged by the duty of good faith to agree? Is time still of the essence?

The Concept of Good Faith in Contractual Performance Continues to Expand

In 2014, the Supreme Court in Bhasin v. Hrynew recognized a duty of good faith in contractual performance that requires parties to "perform their contractual duties honestly and reasonably and not capriciously or arbitrarily".² In 2020, the Supreme Court held in C.M. Callow Inc. v. Zollinger that the duty to act honestly in the performance of the contract precludes active deception.³

In February of 2021, the Supreme Court in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District⁴ held that where a party to a contract exercises its discretion unreasonably, that is, in a manner not connected to the underlying purposes of the discretion granted by the contract, its conduct amounts to a breach of the duty to exercise contractual discretionary powers in good faith.⁵

The General Principle: No Obligation to Agree to Extensions of the Closing Date

In Deangelis v. Weldan Properties Inc.,⁶ the parties entered into an agreement for the sale of a pre-construction townhome. The agreement contained a time of the essence clause. On July 13, 2016, the purchaser took possession of the property by way of interim occupancy. After the interim occupancy, the balance of the purchase price was to be provided on August 23, 2016, the closing date.

On closing, the purchaser advised the vendor that it would not have the necessary funds to complete the purchase of the townhome that day, and that the funds would be received within the "next few days". The purchaser sought an amendment to the agreement to extend closing by three days. The vendor took the position that the purchaser had anticipatorily breached the agreement, which entitled the vendor to terminate the agreement and forfeit the deposit.

In the lawsuit that followed, the purchaser...