Time is of the Essence is language in an agreement or contract that means that performance by one party within a specified time period in a contract is required for that party to necessitate performance by the other party. Failure to act within this specified time period required will result in breach of contract.
Most things in business run on some sort of schedule. Sales and loan escrows, legal notifications, and other business transactions operate on fixed time periods. For example you will see the time is of the essence clause in commercial real estate purchases & leases and 1-4 Family residential contracts. If a contract does not expressly provide or the parties have not manifested such an intent then time is NOT of the essence.
In commercial real estate contracts the time that we are talking about is typically on the executed contract. There are quite a few performance requirements that are contingent on time. For example in a commercial contract on an improved property the following all have a time in which things are due by either the buyer or seller. Failure to comply with these dates could mean breach of contract or other legal consequences. The time period typically begins on the Effective date of the contract.
- Earnest Money
- Feasibility period
- Title Policy & Survey
- Sellers delivery of estoppel certificates
- Closing date
Time is of the Essence Example
Let’s pretend you executed a commercial contract on January 1st, 2019. This becomes the effective date. In the contract you have 30 days for the feasibility period (aka option period) which is when you figure out if anything is wrong with the property. This would mean that on January 31st aat 11:59 pm your feasibility period would expire. Before this time period you can cancel the contract for any reason with written notice. After this date you are required to perform the contract.
In commercial lease contracts there are a lot of dates and timelines to keep up with and it’s important that you be very diligent in doing so. Missing these dates can have severe consequences that are typically laid out in the contract. If you do not understand the importance of the timelines or the consequences then you should seek the advice of an attorney.
Commercial Contract Critical Date List
This is available for commercial purchases. There is also a critical date list available for the 1-4 Family Residential Contract. Take the time to fill this out after a contract is executed and/or have your agent do this. This list will help you keep track of critical timelines and avoid mistakes.