Time Is Of The Essence: Defined And Explained
If you’re buying a home, you may come across a “time is of the essence” clause in your purchase agreement. This legal clause puts a time limit on agreements in real estate and other legal transactions. That limit will depend on your situation, but sometimes, you may find yourself pressed for time.
Let’s take a closer look at how this clause may affect you during the home buying process.
Time Is Of The Essence, Defined
“Time is of the essence” is a legal phrase used to specify the period in which one party must complete its contractual obligations to the other. Failure to meet deadlines set in a contract’s “time is of the essence” clause results in a breach of contract.
What Does ‘Time Is Of The Essence’ Mean In Real Estate?
Although you can find a “time is of the essence” clause in a variety of contracts, the clause is fairly common in real estate contracts. In a real estate contract, “time is of the essence” is used to set a specified time frame for a party to meet their obligations.
Buyers and sellers can both benefit from establishing specific timelines and sticking to them. When all parties want to get to the closing table quickly, they may add this legal language to shorten their time under contract.
If you want to use a “time is of the essence” clause in your transaction, consider contacting a real estate attorney. Consider getting legal advice to decide whether this provision is practical for your situation and can be successfully added and enforced.
Any action that must be completed within a certain amount of time in a real estate transaction can be subject to a “time is of the essence” clause. A few examples include:
- Document delivery
- Termination methods
- The closing date
A real estate contract should include specific completion dates for each time-dependent task in the process.
Failure To Meet ‘Time Is Of The Essence’ Deadlines
When a “time is of the essence” clause is included in a contract, there are consequences for failing to meet a deadline.
For example, let’s say you executed a contract on December 1, 2020. In the contract, you’re required to deliver a property survey in 3 days. If you don’t provide a survey of the property to the other party by December 4, there will be consequences. You may be ordered to fund a new survey or face termination of the contract.
Real estate laws vary by state. Make sure you’re familiar with the terms of the contract before moving forward.
‘Time Is Of The Essence’ Letter
Even if there is no “time is of the essence” provision in your contract, the same principles apply to a “time is of the essence” letter. The letter can be sent to any party that fails to meet an agreed deadline. The letter can be used when there is no clause in the initial contract. The letter would ask for the timely completion of the contract terms.
For a “time is of the essence” letter to be valid in the eyes of a court, it must include a reasonable timeline, clear stipulations and information about what happens if a party doesn’t meet the specified deadline.
Standards Of The ‘Time Is Of The Essence’ Clause
The specifics surrounding a “time is of the essence” clause may vary by contract. But, the basic idea of transparency is always required. Here’s what you should find in a valid “time is of the essence” clause:
1. All Parties Must Be Aware Of The Clause
It’s crucial that all parties are aware of the “time is of the essence” clause. It won’t be enforceable if any party is unaware of their obligations under a clause. Everyone involved in the transaction must be aware of the assigned time frame and the consequences of missing a deadline.
2. All Parties Are Entitled To The ‘Reasonable’ Postponement Of Closing Day
Unforeseen problems and events can always come up, so pushing closing day may be necessary. Either party is entitled to request a “reasonable” postponement. However, the other party must agree to the new closing date.
Since the closing day is enforceable, missing it due to the failure to request a postponement can constitute a breach of contract.
3. Amending A Breached ‘Time Is Of The Essence’ Clause
Even if a party breaches the “time is of the essence” clause, it’s possible to fix the mistake by amending the original clause. If both parties don’t agree to amend the breached clause, the missed deadline can result in significant consequences.
‘Time Is Of The Essence’ FAQs
Real estate contracts aren’t always easy to understand. Let’s look at some commonly asked questions about “time of the essence” clauses so you know what to expect.
Should I avoid a ‘time of the essence’ clause?
It’s usually better for the buyer and seller to avoid a “time is of the essence” clause. You never know what can happen during the closing process – and sometimes delays are unavoidable. As long as all parties agree on a timeline in good faith, the clause typically isn’t necessary. It’s usually in everyone's best interest to close the deal quickly and smoothly.
What happens after a ‘time is of the essence’ clause passes?
If you don’t meet the dates outlined in a “time is of the essence” clause, you may be in breach of contract. If you’re the seller, this may result in a buyer keeping their earnest money deposit and deciding not to move forward with the deal. However, missing a deadline may or may not be considered a material breach of the contract, depending on your location and the situation.
How long is ‘time is of the essence’ in real estate?
“Time is of the essence” isn’t a standard amount of time in a real estate contract. Instead, it’s a period of time to meet a contractual term. That means a timeline is negotiable and can vary from contract to contract.
The Bottom Line
The “time is of the essence” clause is intended to keep both parties accountable throughout a real estate transaction. With specific deadlines laid out, the buyer and seller can move toward a successful closing day together.
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