What “Time Is of the Essence” Means and Why It Matters in Canadian Contracts
Few phrases in commercial contracts carry more immediate legal weight than “time is of the essence.” When these words appear in a contract, they signal that every deadline in the agreement is a fundamental term, not a guideline, not a target, and not something that can be extended unilaterally without consequence. A party that misses a deadline in a contract containing this clause risks giving the other side a right to terminate the entire agreement and claim damages, even if the delay is measured in hours and even if the underlying subject matter is otherwise undisturbed. Understanding when this clause applies, what it actually requires, how it can be lost through waiver, and how to draft it correctly is essential knowledge for anyone engaged in a commercial real estate transaction, a business purchase or sale, a commercial lease, a construction contract, or any commercial arrangement where timing drives value.
The Common Law Starting Point
At common law, time stipulations in a contract are not automatically treated as essential terms. The default rule, affirmed repeatedly by Canadian courts, is that a failure to meet a time deadline does not automatically entitle the innocent party to terminate the contract. It may give rise to a damages claim, but not to a right of rescission, unless timely performance goes to the root of the contract. This default arises from equity’s historical relief against forfeitures, which courts developed to prevent a party from using a minor, technical delay as a pretext to escape an unfavourable bargain.
The “time is of the essence” clause reverses this default. By expressly declaring time to be of the essence either for all obligations in the agreement or for specific ones, the parties signal to any court that the time for performance is itself a fundamental term, breach of which entitles the innocent party to elect to treat the contract as repudiated. The Supreme Court of Canada confirmed this principle in Barnett v. Harrison [1976] 2 SCR 531, holding that when time is expressly made of the essence in an agreement of purchase and sale, a vendor who fails to complete on the closing date gives the purchaser a clear right to elect to treat the contract as at an end and claim the return of any deposit.
Even without express language, Canadian courts will treat time as being of the essence where the nature of the transaction makes it plain that timely performance was fundamental to the parties’ intentions. Canadian Long Island Petroleum Ltd. v. Irving Industries Ltd. [1975] 2 SCR 715 established that in commercial contracts where the subject matter fluctuates in value commodities, shares, or real property in an active market, time will be treated as essential even absent an express clause. For most commercial transactions today, however, relying on the implicit standard is risky, express language is the only reliable way to ensure that a deadline operates as a hard termination trigger.
How the Clause Operates in Practice
When a contract declares time to be of the essence, two consequences follow from a breach of a time deadline. First, the innocent party has an immediate right to elect to terminate the contract and treat itself as discharged from its own obligations going forward. Second, the innocent party may claim damages for the breach, typically the difference between the contract price and the market value of the subject matter on the date of breach, plus any consequential losses that were in the reasonable contemplation of the parties at the time of contracting. These remedies are alternatives, not cumulative, the innocent party must elect to terminate or affirm the contract, and once the election is made and communicated, it is generally irrevocable.
The right to terminate is a right, not a requirement. The innocent party may elect to affirm the contract despite the breach and insist on performance while still preserving a damages claim. In commercial practice, this election is often a strategic one, where the contract has become more valuable to the innocent party than the market alternative, affirmation and a damages claim may produce a better outcome than termination. Where the innocent party would rather be released from its own obligations, for example, a purchaser who has discovered a problem with the property or whose financing has fallen through termination may be preferable.
Waiver of “Time Is of the Essence”
The most significant practical trap surrounding this clause is that it can be waived by conduct, and waiver can occur without any formal amendment to the contract. Canadian courts have consistently held that a party who accepts late performance, agrees informally to extend a deadline, or conducts themselves in a manner inconsistent with insisting on strict compliance may lose the right to rely on the “time is of the essence” clause for that deadline.
The Ontario Court of Appeal addressed waiver directly in Saramia Crescent General Partner Inc. v. Copper Creek (Kleinburg) Inc., 2022 ONCA 432. The court confirmed that where one party represents, by words or conduct, that they will not insist on strict compliance with a time deadline, the other party may rely on that representation to their detriment, making it inequitable for the first party to resile from it without adequate notice. The practical consequence is that a series of informal email extensions, a pattern of accepting late deliveries, or a tolerance for slipping conditional period deadlines can collectively strip the “time is of the essence” language of its force for the obligations to which the waiver applies.
Importantly, once waived, the right to rely on time being of the essence for a particular deadline can generally be reinvoked but only by giving the other party reasonable notice that strict compliance will now be required and a fresh, reasonable period within which to comply. Courts will not permit a party to silently allow a deadline to slide, lie in wait, and then suddenly invoke the “time is of the essence” language to trigger a termination right the other party had no reason to anticipate. In Azzarello v. Shawqi, 2019 ONCA 820, the Ontario Court of Appeal set aside a vendor’s purported termination of an agreement of purchase and sale where the vendor’s own conduct had contributed to the delay and where no clear re-invocation of the time deadline had occurred before the termination notice was served.
Application in Real Estate Transactions
“Time is of the essence” clauses are standard in Ontario agreements of purchase and sale both residential and commercial. Under the standard form Agreement of Purchase and Sale, the closing date is subject to time of the essence, meaning that failure to close on the agreed date (absent a waiver or extension agreement) gives the innocent party an immediate right of termination and a claim for damages or return of the deposit. The Ontario courts’ treatment of this clause in real estate is well-developed, Domowicz v. Orsa Investments Ltd. (1993), 15 OR (3d) 661 (Ont. Gen. Div.) confirmed that where a purchaser was ready, willing, and able to close on the closing date but the vendor was not, the purchaser’s termination of the agreement and claim for return of deposit was fully justified under the time of the essence regime.
For commercial real estate transactions, the clause appears in the agreement of purchase and sale, the commercial lease, any financing commitment letter, and any assignment or consent agreement. In a commercial lease, the landlord’s obligation to deliver possession by a specified date, whether for a new build, a tenant improvement program, or a premises transition, is frequently made subject to time of the essence. Where it is, a landlord who fails to deliver on the agreed date exposes itself to a tenant’s termination right. Where it is not (and where no such clause is expressly included), courts will ask whether a “reasonable time” for delivery has elapsed, a more forgiving standard that gives the landlord latitude that the parties may not have intended.
Three conditions generally apply before a tenant or purchaser can exercise a termination right on the basis of the other party’s delay under a time of the essence clause. The party seeking termination must itself have been ready, willing, and able to perform its own obligations on the required date. It must not have been in default of any of its own contractual obligations at the time of the alleged breach. And it must not have taken any steps that could be construed as a waiver of the deadline or an election to affirm the contract.
Application in Business Purchase and Sale Transactions
In M&A and business purchase transactions, “time is of the essence” clauses appear in the asset or share purchase agreement, the letter of intent, and the closing agenda. The clause is particularly important in governing the conditional period, the period during which the purchaser conducts due diligence and satisfies or waives conditions such as financing, lease assignment, third-party consents, regulatory approvals, and CRA clearance. If the agreement provides that conditions must be satisfied or waived by a specific date and time is expressly of the essence for that date, the purchaser who has not completed due diligence by the deadline faces a choice, waive the conditions, seek the vendor’s consent to an extension, or allow the agreement to terminate.
The letter of intent in an M&A transaction will often contain a specific expiry date and an exclusivity period, both of which may be subject to time-of-essence language. As discussed in the analysis of the Ruparell v. J.H. Cochrane Investments Inc., 2021 ONCA 880 decision, parties who continue to negotiate after a letter of intent has technically expired may inadvertently create ambiguity about whether a binding contract has been formed, underscoring the importance of documenting any extensions in writing before the expiry date passes.
In the context of financing a business purchase, lenders will routinely impose a time of the essence condition on the acceptance of a commitment letter, if the borrower does not accept the lender’s commitment by the specified date, the commitment lapses. This is a hard deadline that cannot be extended by verbal agreement, and a borrower who misses the acceptance window will typically need to begin the financing process again from scratch, with no guarantee that the same terms remain available.
Application in Commercial Leases and Construction Contracts
Commercial leases frequently contain time of the essence provisions governing the date by which the tenant must take possession, rent commencement dates tied to delivery milestones, deadlines for the tenant’s completion of its own fit-out, and notice periods for renewal, termination, or exercise of options. Option exercise periods, in particular, are treated as strict a tenant who misses the deadline for exercising a renewal option by even a single day will ordinarily lose the option entirely if the lease makes time of the essence for such notices, as courts are reluctant to grant equitable relief where the language is unambiguous and the party had adequate time to act.
In construction contracts, both the standard CCDC 2 (Stipulated Price Contract) format used on major projects and bespoke contracts in private development, the time of the essence provisions interact with delay claims, liquidated damages clauses, and force majeure provisions. A contractor who is subject to time of the essence and fails to achieve substantial performance by the specified date may be in breach, entitling the owner to invoke liquidated damages (a pre-agreed daily rate for delay) or, where the delay is sufficiently prolonged, to terminate the contract. The interaction between time of the essence, force majeure (which may excuse delay caused by events outside the contractor’s control), and the parties’ conduct during the project is a frequent source of construction disputes.
Force Majeure and Its Interaction with Time of the Essence
A force majeure clause, which excuses a party’s non-performance or delayed performance where that delay is caused by events beyond their reasonable control, can operate as a contractual carve-out from the strict effect of a time of the essence provision. If the contract expressly provides that the time deadlines are subject to extension for force majeure events, a party relying on the clause must typically give prompt notice, identify the specific force majeure event, and demonstrate that the event is the proximate cause of the delay. The COVID-19 pandemic generated a significant body of Canadian case law on force majeure clauses, in which courts consistently required the party invoking force majeure to establish that the specific delay was causally linked to the force majeure event, not merely that a pandemic was occurring.
Where a contract contains both a time of the essence clause and a force majeure clause, the force majeure provision limits the harshness of the time obligation. Where only a time of the essence clause is present and no force majeure protection exists, a party facing an unavoidable delay whether caused by supply chain disruption, permitting delays, regulatory intervention, or any other external factor, will generally have no contractual defense and will be in breach regardless of culpability.
Drafting a Robust Time Is of the Essence Clause
A well-drafted time of the essence clause should be explicit, precisely scoped, and paired with other provisions that address what happens when a deadline is missed. Simply stating “time is of the essence” at the outset of the agreement as many standard-form contracts do is effective but leaves open questions about whether the clause applies to every deadline in the agreement equally, including internal administrative timelines that the parties may not have intended to be treated as hard termination triggers.
Better practice is to specify the deadlines to which the clause applies, either by identifying them expressly or by declaring that time is of the essence for all material completion dates and defined milestones. Include a provision specifying the form in which any extension of a deadline must be agreed, preferably a signed written amendment to prevent informal waiver from eroding the clause, include a notice provision requiring any party alleging breach of a time obligation to give written notice before exercising any termination right, and coordinate the time of the essence clause with the force majeure, notice, and remedies provisions to ensure they operate coherently as a package. Where a contract has a conditional period structure (as in most business acquisition agreements), the time of the essence clause should also address what happens if the condition deadline expires without a formal waiver or satisfaction notice, whether the agreement automatically terminates, or whether a party must affirmatively elect to terminate.
Speak With a Business Lawyer at Kalfa Law Firm
Whether you are negotiating a commercial lease, structuring a business sale, or reviewing a contract where a missed deadline could have serious consequences, the drafting and interpretation of “time is of the essence” clauses requires experienced commercial counsel. At Kalfa Law Firm, our corporate-commercial lawyers advise clients on the full range of contract drafting, review, and dispute issues, including the often-overlooked risk that a time obligation has been waived by conduct before you realize it needed to be protected.
Contact us today to have your contract reviewed by a lawyer who understands how Canadian courts apply these provisions.
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© Kalfa Law 2026. Updated November 4, 2026
Juliana Ramkissoon, BAH, JD/JD
Juliana Ramkissoon is an associate lawyer at Kalfa Law Firm. Juliana specializes in corporate-commercial law and private mergers and acquisitions (M&A).
The above provides information of a general nature only. This does not constitute legal or accounting advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.
