WHAT DOES “TIME IS OF THE ESSENCE” MEAN IN A CONTRACT?

Most written agreements have dates for the performance of certain obligations. For instance in an agreement to buy a home, there will be a closing date. What happens if that date arrives, and the closing is not held? Is the delaying party automatically in breach of contract?

Many people would be surprised to learn that in and of itself, allowing a date to pass in a contract without performing may not give rise to a breach of contract. A 2004 Connecticut Appellate Court case, Demattia v. Mauro, summarized the general rule in Connecticut regarding real estate transactions as follows: “In real estate contracts, the fact that a specific time is fixed for payment or for conveyance does not make time of the essence—at least, it does not make performance at the specified time of the essence.... When the parties to a real estate contract want to fix a specific date for performance, we generally have required them to express specifically in the contract that time is of the essence; otherwise, performance within a reasonable time will satisfy the contract.” In other words, simply stating “The closing date shall be April 1, 2019” does not require the closing to be on April 1, but within a reasonable time before or after April 1, which period would be determined by the facts and circumstances of each situation. The parties must specifically provide in the agreement that “time is of the essence” with respect to the closing date if they want April 1 to be the fixed, required closing date. Otherwise, the parties have a reasonable period of time to perform, which period would be determined by the facts and circumstances of each situation.

What if you are faced with nonperformance under a contract, without a time is of the essence provision? The options are to wait a “reasonable” period of time for performance, or to provide notice to the other party that failure to perform by a specific date shall be deemed a breach of the agreement, essentially “adding” the ”time is of the essence” provision to the agreement. However, in determining the revised “time is of the essence” date, a reasonable period of time must be provided after the notice is given to allow the other party to perform. This was summarized in a 2007 Appellate Court case, Jaramillo v. Case: “A definite date for performance may be specified in the agreement, without being of the essence. By giving notice, either party has power to make performance itself essential as a condition of the party's duty, provided that the notice leaves the other party a reasonable time for rendering the performance.... [S]uch a notice may shorten the time allowed by the law. The law would have held that performance within a reasonable time after the agreed date would be sufficient to hold the other party to the promise, while the notice, if given a reasonable time before the agreed date, makes performance by that date a condition.”

As always, consult an attorney before signing a contract, especially if it contains a time is of the essence clause.

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