“Time is of the Essence: The parties of this contract agree that time is of the essence in the performance of the obligations described herein.”
The sentence written above is an example of a Time is of the Essence clause.
What does it mean to use and agree to a “time is of the essence" clause?
It means that the signing parties agree to and understand that the dates and times specified in the contract terms are crucial. That failure to act within the specified times amounts to a material breach of the contract.
Why is this simple sentence so important?
The general rule in contract law is that time is not of the essence unless the contract expressly so provides. Without a “time is of the essence clause” the two contracting parties are only required to perform within a reasonable time.
In real estate transactions, the performance by one party within the period specified in the contract is necessary to enable the next step or phase of the contract to continue on time. Party A’s performance of certain actions may be necessary in order for Party B to perform their actions.
Imagine trying to meet a Close of Escrow date if all parties only had to perform such important actions like inspections, appraisals, repairs and securing funding within a reasonable time?
Many real estate contracts contain “time is of the essence” clauses. It is an important contract provision. Unfortunately, it is also one of the clauses that are most likely to be overlooked or abused. Too often one party or the other fails to act within the required time to ensure a smooth transaction.
Why are “time is of the essence” clauses often ignored?
Vendors such as lenders, inspectors, appraisers and escrow agents are often guilty of abusing “time is of the essence clauses.” Since they are not a party to the contract they disregard many contract provisions that the buyer and seller have agreed to perform. Their business processes are not designed to match the provisions of the sales contract. Instead, they see a closing date of aa/bb/20xx and base their timelines solely on this date. But what if the buyer is in another state or even another country? What if there is a holiday near the date? Some activities such as signing documents, wiring money, approving the settlement or recording the deed may take extra time than a standard transaction.
But, failure to act on time or waiting until the last minute to perform your action may not give the next party time to perform theirs. Even worse, failure to act within the time required may constitute a breach of contract. If Party B cannot act because they are waiting for Party A, problems could arise that jeopardize the sale.
Do the courts enforce “time is of the essence clauses?”
In many cases yes. While the court may give the offending party time to cure the contract breach, it also may rule against the offending party requiring them to reimburse the non-offending party for additional costs they might incur. Whereas it may not consider the timing as crucial if this language is left out of the contract.
How can buyer and sellers avoid potential contract breaches?
Whenever we execute a new contract containing a “time is of the essence” language. All parties must be made aware of the contract deadlines, the obligations and time requirements.
Buyers and sellers must impress upon their vendors the importance of timely completion. If delays are unavoidable, as they sometimes are, the two parties should attempt to amend the contract timeline to stay on schedule. It is essential to executing a smooth transaction.
Joe Domino is a Realtor® serving the Phoenix & Scottsdale metro area. You can follow Joe's real estate blog at From The Outside Looking In or find more great information by visiting his website at www.Scottsdale-AZHomes.com