The phrase “time is of the essence” is used often in real estate contracts and we’ve mentioned it numerous times in our posts breaking down real estate forms and addenda. What exactly does it mean and what are the implications to buyers and sellers when they are reminded that time is of the essence in a real estate contract? For our example purposes, we’ll be speaking in terms of the 1-4 Family Residential contract, although the verbiage appears in multiple places on different forms and addenda. The same concept will apply to anywhere you see “time is of the essence” written, but if you have a specific case or question, as always, we recommend you contact your real estate agent or if there are serious legal questions being asked, call your attorney for legal advice.
Time is of the Essence: The Clock is Ticking
Simply put, time is of the essence is a legal phrase used to remind all parties that the clock is ticking. The legal dictionary section of thefreedictionary.com defines it as:
Time is of the Essence. A phrase in a contract that means that performance by one party at or within the period specified in the contract is necessary to enable that party to require performance by the other party. Failure to act within the time required constitutes a breach of the contract.
In real estate contracts, the time that we’re talking about is based on the executed contract. There are quite a few important performance items that hinge upon time – from the option period to delivery of documents to notices and things like ways to terminate…even the closing date itself. All of the dates in the contract are rooted in the executed date. And as time is of the essence, failure to comply with those dates and timelines could have serious negative consequences, some of which can be considered breach of contract and have much larger legal consequences.
In the 1-4 Family Residential contract we use in Texas, this executed date can be found on Page 8. That date is the mother of all dates and is considered to be day zero – where the clock begins ticking.
Time is of the Essence: Example
Let’s say for instance you executed a contract on February 3, 2017. In that contract you have 3 days to deliver the survey and T-47, a 10 day option period, and a financing period of 14 days. That would mean that on (or before) February 6, 2017 you would need to deliver the survey and T-47, on February 13, 2017 your option period would expire, and after February 17, 2017 you would no longer have the right to terminate the contract because you could not get financing under the terms laid out in the Third Party Financing Addendum. It is important to note that most timelines expire at the end of the day (many contracts say 11:59PM), but not all of them do – the option period expires at 5PM (local time to the property).
So what happens if time is of the essence and you fail to comply? The consequences vary – turn to your contracts or associated addenda for answers to those questions as they are often laid out within the contract (for instance, if Paragraph 6.C.(1) is used to obtain a survey and T-47 and they are not delivered in the prescribed time, the buyer has the right to order a new one at the seller’s expense). If the answers are not laid out clearly, then you should seek the advice of an attorney before proceeding so that you fully understand the consequences and legal ramifications of your failure to perform per the contract.
Your best bet is to be aware of the timelines and make sure that anything required of you while under contract is done in a timely fashion and falls within the allotted time frame. If more time is needed, make your agent aware of this fact as it may be possible to extend the timeline for some things, but it will take the agreement of the other party.
image courtesy of Alex Lehner