Real estate contracts - Time for performance

Learning Outcomes

This article examines the rules governing the time for performance in real estate contracts. It details the legal significance of closing dates, the concept of "time is of the essence," how courts determine a reasonable time for performance when no date is specified or time is not essential, and the consequences of failing to perform on time. After reviewing this material, you will be equipped to analyze MBE fact patterns involving delays in closing, evaluate the enforceability of time-related contract provisions, and determine the appropriate remedies for breach.

MBE Syllabus

For the MBE, you are required to understand the principles controlling when performance is due under a real estate contract and the effect of non-performance by the agreed-upon date. This involves analyzing contract terms and relevant legal doctrines. You should be prepared to:

  • Determine whether time is "of the essence" in a land sale contract.
  • Analyze the consequences of failure to perform by the closing date when time is, and is not, of the essence.
  • Identify what constitutes a "reasonable time" for performance.
  • Assess whether a party has waived the right to timely performance.
  • Apply remedies for breach related to timing, including specific performance and damages for delay.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. In a contract for the sale of land, if no closing date is specified, performance is generally due:
    1. Within 30 days.
    2. Within 90 days.
    3. Within a reasonable time.
    4. At the buyer's discretion.
  2. If a land sale contract states "time is of the essence," failure by one party to perform on the exact closing date generally results in:
    1. The non-performing party having a reasonable time to cure.
    2. The contract becoming voidable at the option of the non-breaching party.
    3. Automatic termination of the contract.
    4. A minor breach, allowing only for damages.
  3. Buyer and Seller enter a contract for the sale of Blackacre with closing set for July 1. The contract does not state time is of the essence. Seller tenders performance on July 10. Which is most likely true?
    1. Buyer may terminate the contract because Seller materially breached.
    2. Seller is in total breach and Buyer owes nothing.
    3. Buyer must perform but may be entitled to incidental damages for the delay.
    4. The contract is automatically extended for 30 days.

Introduction

Contracts for the sale of land typically specify a date for closing, which is the date when performance (payment by the buyer, delivery of the deed by the seller) is due. A common issue tested on the MBE involves the legal effect of a party's failure to perform on the specified closing date. Does this failure automatically excuse the other party's performance, or is the late party given additional time? The answer depends primarily on whether the contract made "time of the essence."

The "Time is of the Essence" Doctrine

The default rule in contract law, particularly concerning land sale contracts, is that time is NOT of the essence. This means that failure to perform on the specified closing date is generally considered a minor breach, not automatically discharging the other party's duty to perform. The non-breaching party may recover incidental damages resulting from the delay, but cannot typically rescind the contract solely based on tardiness unless the delay is unreasonable.

Key Term: Time is of the Essence A contract term providing that performance by one party at or within the period specified in the contract is a material condition to the other party's duty to perform. Failure to perform on time under such a clause is a material breach.

Creating a "Time is of the Essence" Clause

For time to be considered "of the essence," the contract must usually contain an explicit clause stating this. Phrases like "closing must be on or before July 1" or "performance by the closing date is a condition" are typically sufficient. Courts may also infer that time is of the essence if:

  1. The contract language clearly indicates this was the parties' intent.
  2. The circumstances suggest prompt performance was critical (e.g., rapid fluctuations in market value, buyer needs immediate possession).
  3. One party gives the other clear, unequivocal notice, within a reasonable time before the closing date, that performance on that date is required.

Effect of a "Time is of the Essence" Clause

If time is genuinely of the essence, failure to tender performance by the specified date constitutes a material breach. The non-breaching party is excused from performance and may pursue remedies for total breach, such as rescission or damages.

Worked Example 1.1

Buyer and Seller contracted for the sale of Greenacre, with closing set for August 1. The contract included a clause stating, "Time is of the essence for all obligations herein." On August 1, Buyer was unable to secure financing and failed to tender the purchase price. Seller immediately declared the contract terminated and sought another buyer. Can Buyer compel Seller to perform if Buyer secures financing by August 15?

Answer: No. Because the contract explicitly stated time was of the essence, Buyer's failure to perform on August 1 constituted a material breach. This breach excused Seller's duty to perform (convey the property) and gave Seller the right to terminate the contract and seek damages. Buyer cannot compel performance after materially breaching.

Reasonable Time for Performance

If the contract does not contain a "time is of the essence" clause (or circumstances do not clearly imply it), failure to perform on the specified closing date is not a material breach. Instead, performance must be tendered within a reasonable time after the stated date.

Key Term: Reasonable Time The period that is suitable, fair, and proper to the objective in view, considering all circumstances. In land contracts without a "time is of the essence" clause, performance tendered within a reasonable time after the specified date is generally sufficient.

What constitutes a "reasonable time" depends on the facts and circumstances, including the nature of the contract, the parties' intent, and whether any prejudice resulted from the delay. A delay of a few days or weeks is often considered reasonable, while longer delays might become unreasonable, constituting a material breach.

Effect of Delay When Time is Not of the Essence

If performance occurs within a reasonable time after the closing date:

  1. The contract remains enforceable.
  2. The late party has breached, but the breach is minor.
  3. The non-breaching party must still perform (e.g., accept the late tender of the deed or purchase price) but is entitled to compensation for any incidental losses caused by the delay (e.g., extra mortgage interest, property taxes incurred during the delay).

If performance is delayed beyond a reasonable time, the delay constitutes a material breach, excusing the non-breaching party from performance and allowing pursuit of remedies for total breach.

Worked Example 1.2

Buyer and Seller contract for the sale of Blueacre, closing date October 1. The contract is silent regarding time being of the essence. Buyer tenders the purchase price on October 20. Seller refuses to close, having received a better offer on October 15. Can Buyer obtain specific performance?

Answer: Likely yes. Since time was not of the essence, Buyer had a reasonable time after October 1 to perform. A 20-day delay is often considered reasonable in land sale contracts, absent special circumstances indicating urgency. Seller's refusal to close constitutes a breach. Buyer can likely compel Seller to perform via specific performance, possibly subject to paying Seller any provable damages caused by the 20-day delay.

Waiver of Time Condition

Even if time is of the essence, the condition of timely performance can be waived by the party who benefits from it.

Key Term: Waiver The voluntary relinquishment or abandonment of a known right or privilege. In contracts, a party may waive a condition, including the condition of timely performance.

Waiver can occur expressly or through conduct. If a party accepts late performance without objection, they may be held to have waived the right to enforce the strict closing date.

Retracting a Waiver

A party who has waived the "time is of the essence" condition can generally reinstate it by giving the other party:

  1. Notice that strict compliance is required in the future.
  2. A reasonable time to comply.

However, reinstatement is not permitted if the other party has detrimentally relied on the waiver.

Exam Warning

Be careful to distinguish a minor delay (when time is not of the essence) from a material breach (when time is of the essence, or the delay becomes unreasonable). The remedies differ significantly. A minor delay only gives rise to incidental damages, whereas a material breach excuses the non-breaching party's performance entirely.

Remedies

  • Time is of the Essence: Failure to perform on the specified date is a material breach. The non-breaching party may:
    • Rescind the contract.
    • Sue for damages for total breach.
    • Potentially seek specific performance if they were ready, willing, and able to perform (though this is less common for the non-breaching party after a material breach by the other).
  • Time is NOT of the Essence:
    • Delay is Reasonable: Non-breaching party must perform but can sue for incidental damages caused by the delay.
    • Delay is Unreasonable: Becomes a material breach. The non-breaching party has the same remedies as if time were originally of the essence (rescission, damages for total breach).

Summary

In real estate contracts, performance is typically due on the specified closing date. However, unless the contract explicitly states or circumstances imply that "time is of the essence," failure to perform on that exact date is usually only a minor breach. Performance must occur within a reasonable time thereafter. If time is of the essence, failure to perform on the closing date is a material breach, excusing the other party's performance. The "time is of the essence" condition can be waived by the benefiting party. Remedies depend on whether the breach related to timing was minor or material.

Key Point Checklist

This article has covered the following key knowledge points:

  • Default rule: Time is generally NOT of the essence in land sale contracts.
  • "Time is of the essence" clauses make timely performance a material condition.
  • Failure to perform on time is a material breach ONLY if time is of the essence OR the delay becomes unreasonable.
  • If time is not of the essence, performance within a reasonable time is sufficient, but the late party may owe incidental damages.
  • What constitutes a "reasonable time" is fact-dependent.
  • Waiver of the time condition can occur through words or conduct.
  • Remedies vary significantly based on whether the time-related breach is minor or material.

Key Terms and Concepts

  • Time is of the Essence
  • Reasonable Time
  • Waiver
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