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Can the Pandemic justify cancelling an Agreement?

Could the Pandemic be a reason for frustrating an Agreement of Purchase and Sale thereby ending the Agreement and excusing any performance or liability under the Agreement by either party? This is the question for 2020!

Under Ontario law the legal doctrine of “Frustration” of Contract could terminate an Agreement when an unforeseen event has resulted in performance of the Agreement becoming “impossible” to perform, or a thing “ radically different” from what the parties originally agreed to. “Frustration” is a legal doctrine, not a contractual term, and therefore applies without the need for an express contractual term. Most standard OREA APS forms do not contain a clause to deal with frustrating events (ie. often referred to as a “Force Majeure” clause ), but many other commercial agreements and leases do contain such a clause. The first Court reported decision to deal with a claim that the pandemic “frustrated” a real estate purchase agreement appears to be the recently decided case in FSC ( Annex ) Limited Partnership v. ADI 64 Prince Arthur. In that case ADI had elected to purchase a development pursuant to a shotgun buy-sell clause. The transaction was scheduled to close April 2020, but ADI refused to close and claimed that the purchase had been frustrated by the pandemic. ADI argued that an unforeseeable market downturn, and an inability to get financing, frustrated the Agreement. The Judge rejected the frustration argument and ordered specific performance obligating ADI to close. The Judge found that an economic downturn was not unforeseeable, even if the cause of that downturn was unexpected and further, that the inability to get financing as a result of an economic downturn (or for any other reason) is an inherent risk in any purchase decision.

This is only one case where the common law argument of frustration did not work but will not likely be the final word on this question. In the meantime, it would be prudent to protect Buyers by adding Conditions that address financing, unfavourable market conditions, or any other due diligence issues, or by adding a Force Majeure clause to the Agreement

Image: freepik/pressfoto


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