Missing Deadlines Makes Buying a Home Even More Expensive

The High Cost of Missed Deadlines in Home Buying

In today’s competitive and high-cost real estate market, buying a home is already a daunting task. With mortgage rates hovering above 6.5%, the financial burden on home buyers has increased significantly compared to just a few years ago. According to a research note from the Consumer Financial Protection Bureau, the monthly mortgage payment for a $400,000 loan has risen by over $1,200 since January 2021. This increase in borrowing costs, coupled with higher home prices, has stretched the finances of many buyers to the limit. Now, an additional and often overlooked risk—missing deadlines—can further inflate the cost of purchasing a home.

Two recent cases from Canada highlight the severity of this issue. In one instance, a delay of just nine minutes in transferring funds led to a buyer being charged an extra $113,000 to complete the transaction. These cases underscore the importance of strict adherence to deadlines, as outlined in the "time is of the essence" clauses found in many real estate contracts. Home buyers who fail to meet these deadlines risk not only incurring additional fees but also losing the property entirely.

A Costly Misstep: The Case of the Correa Couple

The story of Ivy and Alvin Correa, a Canadian couple, serves as a prime example of how even minor delays can lead to significant financial consequences. In 2020, the couple signed a contract with Valstar Homes to purchase a pre-construction home in Oakville, Ontario, for $1,440,000. The builder extended the closing deadline to 5:00 PM on April 20, 2021. However, due to last-minute financing challenges, their lawyer wired the funds at 4:52 PM on the deadline day. Despite their efforts, the funds were not received until 5:09 PM—just nine minutes past the cutoff.

This minor delay triggered the "time is of the essence" clause in the contract, allowing Valstar Homes to terminate the agreement for breach of contract. The builder then offered to reinstate the deal, but at an additional cost of $113,000. While this was a steep penalty, the Correas chose to pay it, likely because the home’s value had appreciated by approximately $600,000 since they signed the contract. However, more than a year later, the couple petitioned a Canadian court to recover their $113,000, arguing that Valstar had acted in bad faith by enforcing such a strict penalty for a minor delay.

The court ultimately ruled in favor of Valstar, stating that the builder acted within its legal rights by insisting on a timely closing. The judge dismissed the Correas’ claim, emphasizing that the "time is of the essence" clause was clear and binding. This ruling highlights the strict enforcement of such clauses in real estate contracts and serves as a cautionary tale for home buyers.

Another Case, Similar Result

The Correa case is not an isolated incident. A similar situation unfolded in the case of 3 Gill Homes Inc. v. Ontario Inc., where a sophisticated purchaser was 35 minutes late in delivering closing funds for one of three contracts. While previous deadlines in earlier transactions had been treated with flexibility, the amended agreement for this particular property established a firm 3:00 PM deadline. When the funds arrived 35 minutes late, the builder, Kassar Homes, terminated the contract.

The Ontario Court of Appeal unanimously upheld the builder’s decision, reinforcing the principle that "time is of the essence" clauses are enforceable and binding. This consistency in legal outcomes underscores the importance of strict adherence to deadlines in real estate transactions. Both cases demonstrate that even minor delays can have significant financial ramifications, regardless of the jurisdiction.

"Time is of the Essence" Clauses in the United States

While the cases discussed above are based in Canadian real estate law, the concept of "time is of the essence" (TOE) clauses is equally relevant in the United States. These clauses establish that deadlines in a real estate contract are not merely suggestions but material terms of the agreement. If a buyer or seller fails to meet a specified deadline, the other party may have the legal right to terminate the contract or pursue other remedies.

The enforcement of TOE clauses in the U.S. varies by jurisdiction. For example, in Colorado, real estate contracts often include default deadlines for key actions, such as earnest money deposits, inspections, and closing dates. However, these deadlines are not automatically strict unless a TOE clause is explicitly included in the contract. Even with a TOE clause, courts may consider factors such as good faith, past leniency in enforcing deadlines, and the degree of harm caused by the delay before strictly enforcing termination rights.

In some cases, U.S. real estate contracts include "cure periods," which provide a short grace period for a party to address a missed deadline before facing breach consequences. These provisions aim to balance the need for contract enforcement with the reality that minor delays may not always warrant severe penalties. Regardless of jurisdiction, however, the enforcement of TOE clauses serves as a reminder that deadlines in real estate transactions are often non-negotiable and must be taken seriously.

The Unyielding Nature of Home Buying Deadlines

Both the Correa case and the Ontario Inc. case highlight an important and unyielding truth: deadlines in real estate contracts are often set in stone when a "time is of the essence" clause is in effect. Courts consistently enforce these provisions, particularly when both parties are experienced in real estate transactions. The principle is simple: certainty and predictability are paramount in contracts, and any deviation from the agreed-upon schedule can trigger severe consequences.

This strict enforcement reflects the broader reality of today’s real estate market, where buyers and sellers are often under significant pressure to complete transactions efficiently. For buyers, this means that missing a deadline—even by a matter of minutes—can result in losing the property or facing hefty fees to revive the deal. Sellers, on the other hand, may face legal challenges if they are perceived as acting in bad faith by terminating a contract for minor delays.

Key Lessons for Home Buyers (and Sellers)

The cases discussed above provide valuable lessons for anyone navigating the complexities of a real estate transaction. For home buyers, understanding the implications of "time is of the essence" clauses is crucial to avoiding costly mistakes. Here are some key takeaways:

1. Understand Every Clause: A "time is of the essence" clause means that every deadline in the contract is non-negotiable unless explicitly stated otherwise. Buyers must familiarize themselves with all terms of the agreement to avoid unintended consequences.

2. Plan Ahead: In today’s high-cost and high-stakes market, buyers should factor in extra time for tasks such as transferring funds or securing financing. Relying on last-minute solutions increases the risk of delays and financial penalties.

3. Document All Communications: Clear and documented communication with the seller, builder, or real estate agent can help demonstrate good faith in the event of a dispute. However, it is important to remember that such efforts may not override the strict terms of the contract.

4. Negotiate a Curing Provision: Buyers may want to negotiate a "cure period" into the contract, allowing a short grace period to address minor delays. This can mitigate the risk of breaching the contract and incurring penalties.

5. Be Meticulous: Every minute counts when large sums of money are involved. Buyers should prioritize punctuality and precision throughout the transaction process, ensuring that all deadlines are met without delay.

By heeding these lessons, home buyers and sellers can navigate the complexities of real estate transactions with greater confidence and avoid the pitfalls associated with missed deadlines.

The Upshot

In today’s volatile real estate market, where high mortgage rates and rising home prices already make buying a home expensive, adhering to contractual deadlines is more critical than ever. The Correas’ experience serves as a stark reminder that even a brief delay can lead to termination, hefty revival fees, and prolonged legal battles.

As you navigate your own real estate journey, remember to plan ahead, communicate clearly, and avoid delays at all costs. Whether you’re buying in Toronto or Denver, understanding how "time is of the essence" clauses operate in your jurisdiction is essential to protecting your financial interests. By doing so, you can ensure a smoother and less costly home-buying experience.