Strict Compliance with the Terms of an Agreement is required to Strictly Enforce Contractual Rights



The Takeaway

The terms of a contract govern the relationship between the contracting parties.  If a party intends to strictly enforce a contractual right that party must have strictly complied with the prerequisite requirements to do so.

The Case

The type of agreement that gives rise to the dispute in Giuseppe Di Millo v 2099232 Ontario Inc, 20151407 Ontario Inc., and Inderjeet Dhugga is one that many land developers are familiar with.

Giuseppe Di Millo (the “Developer”) entered into an agreement of purchase and sale with 2099232 Ontario Inc. (the “Builder”) for the construction of a home on a specific lot (the “Lot”) within the Developer’s proposed subdivision (the “Agreement”).  The Agreement provided the Builder was to construct the home on the Lot within 30 months of closing.  The Agreement also provided that time was to be of the essence.

The Agreement included an option agreement that permitted the Developer to repurchase the Lot (the “Option”).  The 30 month period would have expired on March 5, 2015 but the parties agreed to extend the date until March 5, 2016.  In the summer of 2016 the Developer discovered the Builder had built a temporary structure on the Lot that did not comply with the municipal by-laws or the terms of the Agreement.

The Developer elected to exercise the Option upon the discovery of the temporary structure.  The Developer’s lawyer wrote the Buyer’s lawyer and set the closing date to purchase the Lot pursuant to the Option (the “Option Purchase”) as July 6, 2016 (the “First Notice”).  The First Notice did not comply with the terms of the Agreement.  Two months after the closing date set in the First Notice, in September 2016, the Developer discovered the Developer’s lawyer had done nothing to complete the Option Purchase.

The Developer changed lawyers and, on September 24, 2016,properly served notice on the Builder indicating the Developer’s intention to exercise the Option (the “Second Notice”).  The Second Notice provided closing of the Option Purchase was to occur October 24, 2016.

In the 18 months since the Second Notice was sent, the Developer had done nothing to complete the Option Purchase. The Developer stated that the Developer was ready, willing, and able to close the Option Purchase as scheduled but was unable to do so as the Builder had placed unauthorized 2nd and 3rd mortgages on the Lot that were required to be discharged.

In this case, the Court concluded the 2nd and 3rd mortgages did not prevent the Developer from exercising the Option.

The Court stated that:

by adding the ‘time is of the essence’ clause, the parties made it clear that they would be bound, strictly, by the terms of the Agreement.

The Court found that providing proper notice to the Builder 6 months after the Option first arose did not comply with the time is of the essence clause.  This finding was sufficient to dismiss the Developer’s application, however, the Court went on to consider whether the Developer was ready, willing, and able to close the Option Purchase.

The Court stated that the case law with respect to the exercising of an option is clear, the optioning party must tender.  The Developer supplied no evidence that the Developer had the funds to complete the Option Purchase.  Additionally, the Court heard that the Developer held a power of attorney for the Builder and had the ability to execute any and all documents to give effect to the provisions of the Agreement but failed to prepare or sign any documents with respect to the Option Purchase.

The Developer’s application was dismissed.

The full decision can be found here:

Renewal of a Commercial Lease and the Doctrine of Waiver

The Take Away

Once a party waives an enforceable legal right its ability to then enforce such right is not immediate.

The Case

A recent decision of the Court of Appeal reaffirmed the manner in which a party may revoke its waiver.

In North Elgin Center Inc. v McDonald’s Restaurants of Canada Limited, the parties had entered into a commercial land lease agreement for a period of 20 years (the “Lease”).  The Lease was subject to renewal.  The parties agreed the Lessee, McDonald’s Restaurants of Canada Limited, had provided its written notice to renew the Lease within the required period, however, the parties continued to negotiate the rental rate after the deadline to set such rental rate pursuant to the renewal provisions of the Lease.

The application judge held that through such negotiation the Lessor, North Elgin Center Inc., had waived its right to enforce the strict terms of the renewal provisions in the Lease.  The application judge later found that the Lessor’s waiver was revoked by an email sent by the Lessor to the Lessee.

The Court of Appeal disagreed.

The decision emphasises that to be effective, revocation of waiver requires:

  1. reasonable notice to be provided to the receiving party;
  2. the notice to include a clear indication that the party who granted the waiver will insist upon the strict enforcement of its legal rights; and
  3. the receiving party to be provided an opportunity to cure any defect resulting from its reliance on the waiver.

The full decision can be found here: