Casual legal: If I could turn back time

DISCLAIMER: This article is meant to provide information only and is not intended to provide legal advice. You should seek the advice of legal counsel to address your specific set of circumstances. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this article to be outdated. 

By Ceilidh Hemmati 

Reynolds Mirth Richards Farmer LLP 

Alberta Municipalities Casual Legal Service Provider  

A common feature of boilerplate terms in contracts of various types is a "time is of the essence" clause. While parties may often add this provision to a contract or overlook its inclusion on the assumption that it simply underscores the fact that an action is urgent or that deadlines are important, this provision does much more than that. At law, a "time is of the essence" clause means that the time limits contained in an agreement are an essential component of the agreement. As a result, any breach of those limits, no matter how minor, may entitle the affected party to terminate the contract. There are many examples where courts have found that breaching a stipulated deadline by as little as 35 minutes gave the other party the right to walk away. These situations often arise in the context of real estate transactions, where the buyer is slightly late in delivering the closing funds, or in commercial agreements, where one party needs to take a step or obtain a permit or approval by a set deadline.  

Although "time is of the essence" clauses can have harsh and potentially unintended consequences when applied to fixed dates in an agreement, parties may also find that this provision adds little to an agreement if the agreement lacks clear deadlines. The Supreme Court of Canada (SCC) has granted leave to appeal in a case that centers on whether the clause applies to contractual obligations with an indefinite time limit, such as "as promptly as practicable". Although the SCC has yet to hear the matter, the lower court found that a "time is of the essence" clause cannot be invoked as a basis for termination when an indefinite deadline is breached. The rationale is that failing to meet a vague standard results in uncertainty with regard to when a breach has actually occurred and the right to terminate arises.  

Whatever the outcome of the SCC's decision, both of the above risks suggest that municipalities should carefully consider when they use a "time is of the essence" clause in an agreement. Key considerations include: 

• Are there deadlines that are essential to the agreement? If so, clearly defining those deadlines and specifying when termination rights arise if those deadlines are not met is preferable to and more effective than relying on a "time is of the essence" clause. 

• Are there deadlines included that are not essential to the agreement? If so, leaving a "time is of the essence" clause in the agreement without any additional limitations or parameters means that minor breaches of these deadlines could serve as a justification for terminating the contract. Limiting the application of this clause to certain material and specific deadlines in the agreement reduces this risk. A further alternative would be to consider removing the clause altogether and clarifying what delays will trigger termination rights, as noted above. 

• Are there indefinite deadlines in the agreement, like "within a reasonable period of time"? If the step or action the deadline applies to is a material part of the agreement, an outside date by which the step or action must occur (for example, "within a reasonable period of time and in any event no later than 60 days from the date of this Agreement…") will provide certainty regarding when the deadline has been contravened.

To access Alberta Municipalities Casual Legal Helpline, Alberta Municipalities members can call toll-free to 1.800.661.7673 or email casuallegal [at] abmunis.ca (casuallegal[at]abmunis[dot]ca) and reach the municipal legal experts at Reynolds Mirth Richards and Farmer LLP. For more information on the Casual Legal Service, please contact riskcontrol [at] abmunis.ca (riskcontrol[at]abmunis[dot]ca), or call 310.MUNI (6864) to speak to Alberta Municipalities Risk Management staff. Any Regular or Associate member of Alberta Municipalities can access the Casual Legal Service.