January 17th 2022
COVID-19 has brought many challenges for people when entering contracts. With new variants unfolding routinely, the disruption can leave many people facing delays or cancellations of things that they have contracted for, such as weddings and events. It is worth considering how this uncertainty may impact real estate transactions and businesses generally. This article will discuss a few central concepts to the law of contract and will consider how the law intersects with real estate and other contracts generally.
If a contract cannot be performed due to circumstances beyond the control of either party, the contract is said to be “frustrated”. In the classic British case of Taylor v. Caldwell, a music hall burned down, and several artists could not perform. When the owner of the music hall was sued for failing to provide a venue, the court held that the contract was not enforceable because neither party was at fault in the loss of the music hall. The loss of the concert hall made the contract impossible to perform. Since the loss was outside of the owner’s control, the owner was not at fault. This case is relevant to COVID-19 since a business may not be able to provide a venue if that venue has been shut down due to provincial regulation.
Ontario has a few pieces of legislation relevant to COVID-19. The first one to consider is the Frustrated Contracts Act. This Act provides that where 
a contract becomes impossible of performance that all sums payable cease to be payable. There is discretion as to whether sums already paid should be returnable. This means that where a contract becomes impossible of performance because of the declarations or acts of the Provincial government, such as an order preventing the operations of non-essential services, there may be a question of whether the contract is enforceable.
Covid-19 relates to real estate in several ways. For individuals entering a real estate contract for a new home build, COVID-19 may be relied upon for “unavoidable delay”. This delay with proper notice from the builder could mean there is no compensation for a buyer despite additional time for completing the build. For residential transactions, a ‘decline’ in home value due to COVID-19 may not be a sufficient reason for a contract to be set aside. Consider the case of Bang v. Sebastian, 2018 CarswellOnt 17240 (Ont. S.C.J.) where the court refused to allow a purchaser to back out of a contract when they claimed COVID-19 made the value of the home fall. Considering a purchaser is likely still liable for closing, the biggest threat to closing is whether the money can be transferred to the seller on or before closing day. Presently, banks are open for business and allow customers to enter for the purpose of withdrawals and deposits. However, if the bank shuts down, there may be an argument that the buyer is not liable for the delay in the transaction since banking could not be performed by the purchaser or their solicitor.
However, many law offices are equipped with electronic commercial banking tools and can send wire transfers, even if a bank is physically closed.
A second piece of legislation is Supporting Ontario’s Recovery Act (the Recovery Act). The Recovery Act provides a bar on liability for individuals and businesses if their activities result in the infection of another person, provided the person made a good faith effort to act in accordance with public health guidance and federal, provincial or municipal laws relating to COVID-19.
Legal advice specific to each situation must be obtained, as there are multiple considerations as to whether a contract is truly at an end due to supervening legislative action or unforeseen circumstances. If your business or transaction has been impacted by COVID-19, consider reaching out to Liddiard Law for a consultation.
Michael Craig Liddiard, BA MA JD