You’ve probably used the phrase “time is of the essence,” countless times throughout your life, and heard other people use it just as much. It carries the connotation of needing to do something urgently, immediately. This phrase also has a very specific legal definition in the context of a real estate transaction which is actually not far off from the colloquial meaning. This language is sometimes used in a real estate purchase agreement – and sometimes it isn’t – and whether the parties include it is entirely up to them. You may want to weigh the pros and cons of this particular provision with your attorney, as the need for it can vary between different transactions.
“Time is of the Essence” Defined
What is the precise legal definition of “time is of the essence?” A time-is-of-the-essence clause in a contract means that a party’s performance at the time specified in the contract is required in order to trigger the performance of the other party, and failure to act within that time constitutes a breach of the contract. In the real estate context, this frequently refers to the closing date. However, there are several other provisions in a purchase agreement for which time can be of the essence, such as the option period, the delivery date of certain documents other than the deed, and certain notices.
What Does “Time is of the Essence” Look Like in Practice?
Let’s try out an example to drive home the point of a time-is-of-the-essence provision. Suppose that two parties, buyer and seller, have executed a real estate purchase agreement for the sale of a particular piece of property. In the purchase agreement, the parties provide that the closing date is August 1, 2018, and that time is of the essence. If one of the parties fails to perform on August 1, 2018, then they would be in breach of the contract and would be liable to the other party for that breach.
What if, in the above example, the parties simply said that the closing date was August 1, 2018, and omitted the language about time being of the essence? In that case, a party would not automatically be in breach of the contract if they failed to perform on August 1, 2018. Instead, the other party will typically be required to provide the party who failed to perform a reasonable time in which to render its performance.
What Do “Time is of the Essence” Provisions Mean for Your Transaction?
Essentially, this type of provision should be included whenever the parties want certain performances to occur on a particular date, and not a day later. On the other hand, if having a bit of wiggle room is preferred, then excluding time-is-of-the-essence provisions from the agreement would allow performance within a reasonable time after the target date. Whether to include or exclude these provisions is entirely up to the parties. The wisdom of including them or not will depend on the circumstances of each particular transaction, so you may want to speak with a real estate lawyer before making a commitment one way or the other.