Funds delayed by the Lynx payment system, writes Bob Aaron, can breach ‘time of the essence’ deadlines, which can allow sellers to cancel deals, keep deposits and sue for damages.
In the uncertainty of today’s real estate market, perhaps the biggest issue for buyers, sellers and their lawyers is the delayed delivery of purchase funds sent by wire transfers.
When a purchaser’s funds are delayed by the banking system, transactions are in jeopardy, moving vans are unable to off-load their contents, and buyers may have to stay in a hotel until the funds arrive in the trust account of the seller’s lawyer.
With the use of certified cheques in real estate closings declining due to the possibility of forgery, the delays occasioned by e use of wire transfers are becoming increasingly frustrating for growing numbers of buyers and sellers.
In a presentation to a large group of lawyers in person and online last month, Toronto real estate lawyer Tannis Waugh said, “I am continually struck with the haphazard and chaotic nature of delivery times. Some wires appear to land in a recipient account in less than five minutes, even when being sent to another institution. Others will take hours or days, seemingly with no explanation.”
Here’s how the system works: the buyer’s lawyer initiates a payment using the Lynx high-value wire payment system with Payments Canada.
Lynx is an electronic wire system used by banks to safely send wire payments on behalf of their customers. Wire payments between banks are cleared and settled using Lynx. They are fast, irrevocable and quickly made with real-time settlement finality.
In the real estate scenario, the seller’s lawyer may experience a delay receiving funds because the retail posting systems that update the customer’s bank balance run separately from Lynx. Manual posting of wires to the seller’s lawyer’s account may be delayed for numerous — usually unknown — reasons while the buyers and their movers are impatiently waiting for access to the home or condominium.
It gets worse. All real estate contracts have a “time of the essence” clause, which says that the time deadlines in a contract — such as Dec. 15, 2026, 6 p.m. — are to be strictly construed.
Our courts have repeatedly ruled that late delivery of funds, even by a few minutes, is a breach of contract, entitling the seller to cancel the transaction, forfeit the deposit and sue the buyer for damages.
When wired funds are delayed in a rising market, there is a temptation for sellers to pull the plug, terminate the deal and resell at a higher price. But in today’s market, when wired funds are delayed, buyers and sellers usually agree to postpone for a day until the wire hits the seller’s lawyer’s trust account. But the buyers in this case may get hit with additional costs or a penalty for the extension.
Referring to banks in her presentation last month, Waugh asked the question: “What happens when a third party’s actions (or inactions) prevent one party from fulfilling their contractual obligations?”
Will the courts relax a strict interpretation of the time of the essence clause in contracts? The answer, Waugh concluded, appears to be “no.”
Even though the Supreme Court of Canada has acknowledged a duty of good faith in performing contracts, the strict interpretation of a time deadline in a contract will usually override the good faith duty.
My best suggestion to avoid a contract dying due to a wire delay is for buyers to insert a clause in their real estate purchase offers to allow for a one-day extension when the buyer’s purchase money wire is temporarily lost in the black hole of Canada’s Lynx wire transfer system.