When Is a ‘Time is of the Essence’ Clause Important?
An unqualified provision reading "time is of the essence" generally requires prompt performance in accordance with the terms of the contract. The language may or may not be followed by an additional statement specifically explaining the effect of including the "time is of the essence" provision . A "time is of the essence" clause ordinarily will be given life for the purpose of allowing a non-defaulting party to terminate the contract if the other party defaults without a valid reason for the delay or if the other party fails to perform as required by the terms of the contract. The ramifications of this clause are significant and should be well understood by parties to a contract.
Why Does Timeliness Matter in a Contract?
A "time is of the essence" clause signifies that the time for performance of a contract is of such importance as to justify the non-performance of the promisee if the promise is not performed within the time limits above-mentioned. However, the absence of such clause does not necessarily render time immaterial in the contract.
Where the date specified by the parties for performance is not met by the promisor, the promisee has two alternatives: one, to treat the contract as rescinded, and its performance as waived; or two, to hold the promisor to strict performance.
The following are some of the factors of an objective nature that are relevant to determination of the question as to whether or not a time is of the essence clause is to be incorporated in a contract, such as: (a) the subject matter of the contract; (b) the acted-out intentions of the parties; (c) the nature of the rights and obligations sought to be enforced; (d) equitable considerations; (e) whether experience bears witness to the particular situation now facing the parties; (f) the reasonableness of the delay; and (g) the manner in which judgment has been employed in determining the primary facts.
Any definite time of performance named in a contract is generally considered material.
Legal Ramifications for Breaching the Provision
The failure to perform with the time of the essence clause can have some drastic consequences for the non-complying party. For instance, in Sanderson v. Poole Power & Equipment, Inc., 441 So.2d 772 (Fla. DCA 4th Dist. 1983), the provision was enforced; the Court held the purchaser to strict performance where the buyer failed to obtain the financing within the specific time frame, despite the fact that the Court found that such was an unreasonable time as to the parties. The Court in that case reasoned that the seller relied upon the time of the essence clause when in fact the buyer did not obtain the financing to close the deal within the timeframe contemplated by the parties.
Another example where courts enforced the time of the essence clause was in Davis v. Davis, 103 So.2d 643 (Fla. DCA 2d Dist. 1958). In Davis the Court enforced the time of the essence provision where the sellers of the property in issue, by their deliberate acts, gave the buyer the reasonable belief that they were claiming the benefit of the time provisions, and on that account the buyer made preparations based on the belief that they would be ready to proceed. Davis, at 645. In Davis, the Court held "a party cannot intentionally breach an existing contract and then set up the other party’s breach as a defense." Id.
In Wyckoff v. Craig, 48 So.2d 158 (Fla. 1950), the Florida Supreme Court held that one accused of failing to perform within the time of the essence provision in a contract cannot escape liability thereunder by establishing that the delay in performance was due to the material breach of the other party. The Wyckoff defendant was the seller in the contract. The record in Wyckoff indicated that the defendant was aware of the condition of the title to the property prior to the buyer entering into the contract; thus, the time of the essence provision was strictly enforced, despite an abatement in the rent for the period in which the seller was in breach, the sale of the property to third parties, and the liquidation of the selling corporation. Id. at 159.
Courts have noted that "the time of the essence provision may be waived by the other party through conduct or by acts inconsistent with the provision [but] waiver is not usually lightly inferred….." Nd, at 159 (citation omitted). Courts have held that a time of the essence provision is not waived when the delay in performance is not substantial. See Wallach v. Lutz, 91 So.2d 601 (Fla. 1956) (holding the provision was not waived when the seller delayed delivery of a warranty deed only one day after the closing date).
How to Write a Good ‘Time is of the Essence’ Clause
Careful drafting is required to ensure that a clause is effective in a given case, and the following points should be noted: Parties should avoid using the "magic words" unless there is a strong case for doing so. As discussed below, later case law casts doubt on whether the use of such words is even necessary to give the parties’ intentions effect. The exact date whose timing is to be made of the essence needs to be clearly identified. A clause such as "time is of the essence in respect of the payment of the deposit on 1 November 2011" is specific. It does not say "for delivery of the deposit" which could be relied on as covering temporal issues arising in relation to the closing or adjustment. It does not say "in the time period stated" which would make the clause somewhat uncertain. It does not say "in respect of the paying of all moneys due" which would, in the absence of determining words, presumably mean that "time is of the essence" only applies to the payment of the deposit but no other money. Arbitrators should normally be astute enough to take the parties’ intention into account in deciding whether the clause is effective or not. Disputes often arise through failure to specify the date in this way. Parties are encouraged to be specific about the date, and where relevant to stipulate dates for other matters to avoid uncertainty about the meaning of "time is of the essence". If the expression "time is of the essence" appears several times throughout a document and/or if it is used in more than one document, the question may arise whether it is possible to interpret the clause strictly or whether conduct is thereby created to support argument that the parties intended elapsed time to be relevant so that time is not necessarily of the essence. The answer will depend upon the facts, but this issue may be obviated by a definition of the term "time is of the essence" and the use of the defined term throughout the document. If parties want to say that an event is to happen "as soon as reasonably practicable" or "as soon as practicable" or "as soon as possible", it is uncertain whether a dispensing clause is required, but it is best to include a dispensing clause to ensure that parties have given serious thought to the question of delay. A dispensing clause is a clause in a contract that allows for the non-performance of a provision, in certain specified circumstances or in respect of a limited degree of default – see below. It is not advisable to use the abbreviated form ("time is of the essence"), although it might still be held to create a binding deadline. A waiver clause (i.e. it is a condition precedent to the existence of a waiver that written notice of intent must be provided and not waived) should not always be included, as it could be held to give too much weight to the effect of the words.
Examples and Case Law
Finally, take a look at Sears Roebuck v. Rago, 203 A.2d 749, (Del. Super. Ct. 1964). (This is a title that has been frequently cited by Delaware courts.) In this case, Sears sued Rago to recover its commissions owed on a real estate transaction. The crux of the dispute concerned the fact that the buyer’s attorney, Rago, failed to send papers to Sears within ten days as required by the contract. Although not relevant to the "time is of the essence" issue, Rago argued that the parties had agreed to modify the terms of the agreement, so no liability was owed . The court held that even the defendant’s testimony regarding the modification agreement was contradictory and that the modification was never agreed to, thus the plaintiff recovered summary judgment. The takeaway from these case studies is that if parties to an agreement do not hold true to the terms of a "time is of the essence" clause in an agreement, they should not be surprised when the other party disclaims any obligations under the contract and seeks damages.
When to Include / Not Include the Clause
Companies and individuals entering into contract should include a time is of the essence clause when the timely performance of a provision is important, when they want to make an action a condition precedent, and when they want to have the right to terminate for nonperformance by a date certain or within a certain period of time in order to protect their rights.
There are some situations, however, where a time is of the essence clause is not appropriate. For example, in a builder’s contract where the homeowner is paying the builder to do the work, if the builder is taking longer than agreed and the homeowner suffers damages as a result, the homeowner could take legal action against the builder for the breach of contract without the need for a time is of the essence clause. Courts will generally hold a contractor to its estimates for completion and impose damages for its delay in completion.
In other situations, such as a missed closing date under in a real estate contract where the reason for the missed date is a title defect and the seller is working to cure the defect, it would not be appropriate to terminate the sale without a realistic opportunity for the seller to cure the defect so that the sale can be closed. There have been many occasions when closing was delayed due to lender requirements or title issues and the parties simply went forward to close the transaction. In such cases, the agreement between the parties to proceed with the closing has generally prevailed over an argument that time was of the essence.
Despite the importance of a time is of the essence clause in many contracts, in almost all contexts, there are exceptions and considerations that should be taken into account when determining whether such a clause is appropriate.
Ways to Negotiate the Provision
In the high-stakes environment of commercial law, the ability to successfully negotiate contract terms can mean the difference between success and failure. When it comes to incorporating "time is of the essence" clauses in commercial contracts, there are several tips and negotiation techniques that can help brokers, manufacturers, exporters, and other parties navigate these tricky contractual provisions.
First, seek mutually agreeable language. Instead of asking the other party to accept your proposed language for a "time is of the essence" clause, aim for a neutral phrase that expresses the sense of urgency without being a hard-and-fast deadline. For example, if payment is due within 60 days, you might suggest language such as, "Payment shall be made as promptly as possible under prevailing business standards." Or, for the lease of equipment with an extended term, you might suggest language like, "Time is of the essence, but payments shall not be deemed late subject to five business days under prevailing business standards . "
Second, engage in "give and take" to avoid an impasse. Ask open-ended questions to find out what the other party is most concerned about. If they insist on a firm deadline, for example, offer to include a caveat that allows for delays due to events beyond the control of the party that will be held accountable should that deadline be missed. This strategy will create an opportunity for negotiation, which may help you reach a resolution.
Third, keep in mind the bigger picture. Parties often enter into contracts with the expectation that some flexibility may be required as the business relationship evolves. As the saying goes, "business can happen outside the contract." If you keep this in mind while negotiating a "time is of the essence" clause, your eventual contractual language might better reflect the reality of how you will do business going forward. This, in turn, might go a long way toward preventing disputes and defaults in the future.