Is Time of the Essence in Your Real Estate Contracts?
Perhaps you have seen this clause pop up in a real estate contract, perhaps not.
I am not an attorney, but I’ve had personal experience with TIME IS OF THE ESSENCE clause when we were selling our home on Long Island in New York State.
The buyers paid well over the asking price and wanted to move in right away. It was June, they needed to be in by the beginning of the school year. Their lease was running out and after losing out on several bids, they wanted to be assured of having a home when their kids were to start school. They wanted and needed this home and as soon as possible.
We, on the other hand, wanted to take our time and not move until the end of the summer. Our children were signed up for summer camps, cleaning out the house and packing was going to be a big job. At the same time, we did not want to lose these eager, fully-qualified buyers who were willing to pay $40K over the asking price, outbidding three other offers.
The buyers (both attorneys, by the way!) agreed close at the end of August, BUT inserted “TIME IS OF THE ESSENCE” clause in the contract, to which we also agreed as we had no plans to delay our move. Also, losing these buyers could prove costly to us and create huge dilemmas: we’d have to put home back on market, keep paying taxes and mortgage on it, have to make hard decisions as to where to send children to school (old town, new town?), start rental in new town as our new home was being built, or stay until current house sold? We’d be facing possible market vagaries and might be forced to accept a much lower price and so on… In other words, we wanted the situation LOCKED IN.
In this case, the clause TIME IS OF THE ESSENCE was the perfect solution for both parties, the buyers and the sellers:
WHAT BUYERS ACHIEVED WITH “TIME IS OF THE ESSENCE” CLAUSE IN THIS CASE STUDY:
It gave them REASSURANCE that they would have a home in time to move in and settle children in school before start of the school year. If sellers backed out on the sale of their house, the buyers would have to face the risk of a last-minute rental (not really available in our town or perhaps anywhere in the area on short notice) or live with the wife’s parents in a nearby town: good option to have if there’s nothing else, but not ideal. They wanted our town and after a number of failed bids did the smart thing by going well over the asking price in a multiple bid situation. Also, they LOVED our home (so did we!!! I teared up at the closing…when everyone was congratulating each other, I couldn’t choke out a word…). The buyer husband confessed to me that he felt so resigned in regard to the home-buying process, got depressed as soon as he saw our home on the market, thinking how perfect it was and already anticipating the disappointment if they were going to lose out on this bid as well. They decided to GO HIGH on the “highest and best” round of bidding and got the house. [Another lesson learned?]
Just parenthetically, the question one might ask here is what would actually happen if we, as sellers, decided NOT to sell the home after signing this contract, but that is a different discussion.
WHAT SELLERS ACHIEVED WITH “TIME IS OF THE ESSENCE IN THIS CASE STUDY:
As was described above, we, the sellers, wanted these buyers, this price, this timing, the GUARANTEE of performance. We had a hefty deposit to back up the words [of these two lawyers; I did not just say that!]. We achieved calmer waters at a stressful time for all parties and everybody was reasonably content, if still a tad anxious – you know, until “the fat lady sings”.
What exactly does “TIME IS OF THE ESSENCE” mean? Basically it means that all the dates in a given contract are IMPORTANT and there will not be any deviations or extensions. Failure by either party to perform within the specified timeframe constitutes breach of contract.
In real estate and construction transactions, in particular, regardless of the fact that there may be dates indicated in the contract, the general interpretation is that time is NOT of the essence unless specifically included.
In the absence of the TIME IS OF THE ESSENCE clause in real estate contracts, even if the buyer or seller are late with a deadline, they are usually permitted to carry on if it’s within a “reasonable time”. Or, an official extension may be requested and granted. Sometimes with an extension, TIME IS OF THE ESSENCE language is included so as not to drag out the closing. That clause signals that now THEY MEAN IT and that further extensions will not be forthcoming.
When TIME IS OF THE ESSENCE is written into a contract, performing by the stated dates becomes MANDATORY. Any delay may become grounds for cancelling the agreement, REGARDLESS OF REASONS. Buyers may be at risk for losing their deposit and the home of their choice. Sellers may wind up with an unsold home along with the ensuing issues and expenses.
Both BUYERS AND SELLERS should be on the look-out for TIME IS OF THE ESSENCE clauses in their REAL ESTATE CONTRACTS, either in the original ones, or particularly after an extension is granted. There is no room for error here and ignorance is not an excuse. Please read your contracts and understand what you’re signing. Ask an attorney if you don’t.
IF YOU LIKE THE IDEA OF AVOIDING RISKS IN YOUR REAL ESTATE TRANSACTIONS, firstname.lastname@example.org . I do not want your listing and I will not try to sell you a house.