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You Be The Judge: Time of the Essence Closing Date

Published by Joseph Ferrara (2) May 27th, 2008 in Legal. Comments

The parties to a contract for a home purchase had a clause which read “closing of title to take place on or before November 30, 2007 but in no event later than December 31, 2007″.

A week prior to November 30th, the seller’s attorney called the buyer’s attorney advising that the buyer ought to be ready to close by November 30th, according to the contract. November 30th passed without the buyer being able to close title (the buyer was on vacation). Thereafter, the seller’s attorney emailed the buyer’s attorney and said if the buyer did not close by December 31st (quoting the contract clause), the buyer would be in breach of contract and forfeit the contract downpayment. In a reply letter several days later, the buyer’s attorney advised the seller’s attorney that the buyer would close on January 7, 2008, when the buyer returned from vacation.

On January 1, 2008, seller’s attorney sent a certified letter to buyer’s attorney notifying that the buyer had breached the contract by failing to close according to the contract terms (again, quoting the contract clause) and that, consequently, buyer had forfeited the contract downpayment. The Notice further stated that the buyer being on vacation was not a reasonable excuse.

Shortly thereafter, the buyer sued the seller for specific performance (i.e. that seller sell the home to buyer as per the contract). Seller claimed that the buyer had breached the contract terms by failing to close by December 31st and that seller was ready, willing and able to close on that date. Seller argued that the closing date contract language was clear, unequivocal and unambiguous and made “time of the essence”. The buyer disagreed that the contract made time of the essence and a mere 7 day delay after December 31 was reasonable, in any case, and should not result in a forfeiture.

Who wins?

Other You Be the Judge Posts:

The Case of the Noisy Neighbor

Dual Agency v. Buyer Agent

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  • No. If the term Time is of the essence is used, the seller wins.
  • Does the buyer still win when the contract uses "on or before" and also includes a "Time is of the Essence" clause? In Minnesota, standard purchase agreements from the Minnesota Association of Realtors includes a boiler plate time is of the essence clause.
  • Barry

    If the contract just read "on or before", buyer still wins.

    Whether a contract reads "on or before" or "no later than" or BOTH, time is NOT of the essence and the buyer, or seller, can still go beyond that deadline.

    Yes, plain language is no assurance-- remember we are dealing with lawyers, who have a language all their own.
  • I agree that it is sloppy language
    Our contract reads "On or Before" and includes a "Time is of the Essence" clause

    But what is ambiguous about "No Later Than"

    This is a great example of plane speak not working well.
    I wonder what way it would have gone if the contract had just read
    "on or before December 31, 2007″.
  • Answer to this You Be The Judge post:

    The buyer wins!

    Case law, including from the Court of Appeals of NY (our highest court, see link below)is that contract language "on or before" or "no later than" does NOT make "time of the essence", which is a legal term of art. If you want a client to do something by a certain date and suffer consequences, the best way is to set forth the consequences (eg: if you don't close by December 31, all adjustments will nonetheless be calculated as if closing took place on December 31 (I use this one all the time when representing sellers) or if you want time to operate as a contract breach, with consequences being loss of downpayment and freedom to sell to another, you must use the actual term "TIME IS OF THE ESSENCE" (I prefer to use all caps as well).

    http://www.nycourts.gov/reporter/3dseries/2006/...

    Related post:
    The Secret of Contract Escape Clauses.
  • The answer tomorrow, Friday, May 30.
  • The Contracts we use here in my area of VA have the same wording, "on or before". I've always found it to be too open-ended, but it's how the Contract is worded. In the scenario you put forth, I think the Seller wins.

    In my experience with this wording, the Seller would rarely have a case to win. The Contract allows flexibility with the closing date by saying "on or about", and specifically doesn't give a drop date unless written in by the Selling Agent. In this scenario though, the Buyer forfeited the "about" by going on vacation, IMO. Even though the time frame to close was broad, Buyer has every obligation to move the closing through as quickly as possible, so in this case I think Seller wins.

    And the winner was ... ?
  • Per definition of Time is of the Essence, Seller wins.
  • rescued from Spam

    Comment Author: Austin Real Estate

    Personally as a selling agent I would just have closed 7 days later. But technically it looks like the buyer is clearly at fault and would lose in a court case.
  • 1. I agree with Vicki. The clause "on or before, but no later than" is poorly worded.
    2. If the court ruled the closing date was ambiguous, the ambiguity would be construed against the drafter of the purchase agreement. In this case, it didn't matter because the buyer didn't perform by either date. But if the buyer was arguing time was not of essence, the argument may hinge on who drafted the purchase agreement.
    3. I believe the court ruled that the buyer did not perform as contractually agreed, and awarded damages to the seller (i.e. the earnest money).
    4. In the end, the goal is to sell the property. If the buyer was truly able to close 7 days later than the agreement stated, and seller was still willing to sell at those terms, both parties should have dispensed with the court action, and sold the property!
  • Because of the two differnt closing dates, I think this would be a voidable contract by letter of the law even if the buyers didn't perform by either time. Because seller's executed a voidable contract, I would bet they don't have recourse against the buyer and the buyer get a refund of earnest money and loses specific performance.
  • Hi Vicki

    Yes, the case was decided.
  • The language of the contract sounds clear. Seller wins.
  • Hi Joe -

    Has this settled in court yet? I think the original language was pretty sloppy - how can it be "on or before" and then "no later than" ? It reminds me of advertisements that say "save UP TO $$$, or more."

    In this market, most sellers are doing what ever it takes to get to closing, and many buyers are taking advantage, and dawdling about their close dates. Back in 2005, when it was a seller's market, the buyers knew there were several back-up buyers waiting to pay a higher price, so there were very few late closings. They also knew that the next house they found would be more expensive.

    I'm guessing that the seller would win on this, but I wouldn't be surprised to hear that he didn't!
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