When a “time is of the essence” clause is contained in a real estate contract, the parties are required to perform certain obligations within a specified time. If a party’s obligation is not performed within the essential time, the non-performing party has defaulted. By defaulting, the other party is provided the opportunity to cancel the agreement. “Time is of the essence” is not a standard provision.
In a luxury real estate transaction, a “time is of the essence” clause is designed to provide sellers an immediate right to terminate a contract if a purchaser is unable to timely demonstrate his or her ability to purchase the real property. The clause must be expressly stated or stipulated in a contract for the sale of realty. If a contract makes time of the essence, it is not necessary for the sellers to give notice to the purchaser in order to claim a default. Also, the seller is not required to give the purchaser an opportunity to close after non-performance by the essential date.
While time may be of the essence as to a closing date, time may not be of the essence as to other dated provisions in a contract. Minor deviations from a contract’s scheduled dates are not noteworthy enough to warrant damages or termination of the contract unless time is of the essence. Failure to meet the conditions of a “time is of the essence” provision may be a material breach of the contract. A material breach of contract may result in the forfeiture of the down payment.
Hiring a real estate attorney is useful for drafting or reviewing a real estate contract. A well-drafted contract will make it unambiguous whether or not time is of the essence in the transaction. When a contract does not expressly provide that time is of the essence, the contract must close in a reasonable time.