It is 4:00 p.m. and it appears your real estate purchase or sale will not close on the scheduled completion date.  Logically, the first question on your mind is what are your options.  Generally, you will need to choose from one of the following four paths:

  1. Both parties agree to terminate the transaction;
  2. Both parties agree to extend the closing date;
  3. Neither party tenders and a new closing date is appointed; and
  4. One party may tender on the other party.

For example, there are many reasons why a deal might not close on the closing date: for example,  the buyer does not have the mortgage funds, the seller cannot obtain a discharge of an existing private mortgage on title or one party refused to close, etc. 

This article explores what you can do if you find yourself in one of these situations and how to properly deal with the situation, if necessary.   

Can the parties agree to terminate the deal?

Yes. The first option is for the parties to agree to terminate the transaction. Generally speaking, this may depend on the willingness of the parties to complete the transaction and their “goals.” If there is no provision in the agreement of purchase and sale (“APS”) allowing for termination of the deal, and there very rarely is, this option involves a negotiation.  In most circumstances, there is one party which is unable or unwilling to close the deal (the “Unwilling Party”) with another party desiring to close the deal (the “Ready Party”). 

Generally, the Unwilling Party will provide some sort of compensation to the Ready Party in exchange for termination.  

  • In the case where the seller is the Ready Party, they may require compensation equal to any costs, any decrease in purchase price anticipated on a subsequent purchase, the risk of having to sell the property again and the extra time required to sell that property. 
  • In the case where the buyer is the Ready Party, they may require compensation for the costs, difference in the anticipated purchase price for a new purchase, or lost opportunity due to any unique features related to that property. 

Termination is almost always a negotiated outcome, balancing each side’s willingness and goals.

Can the closing date be extended?

Yes. The second and most common option is for the parties to agree to extend the closing date.  In some situations a party may be an Unwilling Party on one day, but able to close within the following few business days. 

  • In the case of a buyer is the Unwilling Party, this could be as a result of funding delays either due to mortgage funds not obtained or delays in money transfers between parties.  In these situations, both parties likely still desire and intend to close, but the buyer simply needs slightly more time.  The parties can agree to extend the closing date to the date in which they believe closing can be completed.  In the case of funding delays, this could be the following morning. 
  • In the case of a seller is the Unwilling Party, this could be due to difficulties resolving issues with the property by the closing date such as a mortgage discharge or open building permit that the buyer will not accept, or other unresolved buyer requisitions.  In each of these situations, the Unwilling Party is often able to resolve the issue within a few business days. 

Extensions can be granted as a courtesy or in exchange for compensation, such as covering additional mortgage interest or other costs caused by the delay.

What does it mean to tender on the other party?

Tendering is the formal process of showing that you are ready, willing, and able to close.  It provides an evidentiary foundation which would form the basis of a later proceeding suing for damages.    

Historically, courts required tender to be perfect in order to be effective.  If tender was found to be defective, this would relieve the defaulting party of their obligations under the agreement.  Courts have evolved the perfection requirement to further the purpose of tendering: to demonstrate that the non-defaulting is ready, willing and able to complete a contract.  It is still important that tender be completed meticulously so as not to inadvertently cause the defaulting party to be relieved from their obligations. 

There are some situations where tender is not required by the Ready Party, which includes: tender has been waived (by language or the APS), there is unequivocal repudiation, or there is an unequivocal default to a condition precedent.  For example, a party or their solicitor may state that they do not intend to close the deal.  Alternatively, a selling party may sell the land which forms the subject of the APS to a third party causing them to be unable to close the agreement.  If you are unsure as to whether tendering is required, it may be advisable to tender anyway to protect your rights under the agreement (but, once again, make sure your tender is perfect). 

While the specifics of how to appropriately tender are outside the scope of this article, it generally requires the following:

  • all appropriate documents to be prepared, signed and delivered to the other party;
  • transfer and any other related land registrations signed for completeness;
  • if buyer, balance due on closing (courts have accepted evidence of funds in place of tendering the balance due on closing, however there is a risk due to this being an imperfect tender);
  • if seller, an executed private mortgage discharge in the seller’s solicitor’s possession may be required or, in the case of an institutional mortgage, a discharge statement and signed undertaking to discharge;
  • if buyer, land transfer tax statements completed;
  • statement of adjustments;
  • undertaking to readjust;
  • relevant closing date searches; and
  • any other executed documents required by the APS.

As a result, the tendering party may then sue the defaulting party for any damages in relation to the deal not closing on the appointed closing date.

What if no one tenders on the closing date?

If neither party tenders, and tendering is required in that circumstance, the APS does not terminate automatically. This is called the “double default” rule. As a result, the APS can still be a live agreement, but the “time of the essence” clause will then no longer apply.  

Either party is then able to appoint and agree to a reasonable closing date and reinstate the “time of the essence” clause to complete the agreement.  If a party attempts to unilaterally terminate the agreement without reinstating a new closing date, this may be considered a repudiation of the contract and the party may therefore be liable for applicable damages. 

Conclusion

There are a variety of options to consider when a real estate deal falls through.  It is important not to assume that because the deal did not close, that it is dead.  The right path depends on the circumstances, negotiation, leverage, and timing.

If your real estate deal is at risk of falling through, the decisions you make can significantly impact your legal and financial position.

Contact Miller Thomson’s Commercial Real Estate team to understand your options and protect your interests.

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