The one tool an Attorney can use to enforce a closing date of a real estate transaction. The one tool that many investors, buyers and sellers desire to use to their advantage when they lose trust the other side will perform and although it’s the only tool, it is riddled with imperfections that cause buyers, sellers and their attorneys alike to think twice before sending it.
Before we talk about Time of the Essence (T.O.E.), it is important to understand why it’s a tool that is needed in the first place. In a real estate contract, unless the closing date is made “Of the Essence”, it’s considered a formality. When I discuss this topic with my clients, I explain, the date in the contract is a target. Closings are often not made “of the Essence” because there are many moving parts to a real estate transaction and the chances of the parties being able to 30 days in advance to close at a particular time on a particular day without any risk of the date needing to move are slim to none.
Of the Essence means if the date is missed the party who’s not at fault for missing the date can hold the other party in breach. This is a big risk to take in a real estate transaction. The risk of missing the date is very high, the party who fails to close (for good or bad reason) can be automatically held in breach of contract by the party seeking to enforce the “Of the Essence” date.
To avoid this unnecessary risk, attorneys remove and or make it explicit that the “Of the Essence” nature is not included as a term of the contract. However, the parties often add to the contract that if the first target date missed they can then serve Time of the Essence. In one of my future articles I will write about how someone may be able to serve time of the essence in anticipation that the target date will be missed, but hold that thought for now.
For the purposes of this post, let’s just remember that the desire to serve Time of the Essence is usually triggered by the target closing date being missed.
Is the target date being missed the only factor needed to serve time of the essence?
Nope. This is where most real estate professionals, investors, buyers and sellers get really frustrated. T.O.E cannot be served just because the original closing date is missed…other factors need to be considered.
This is where Time of the Essence goes from being a blessing to a curse. It is a blessing in theory. It is a blessing if the landscape is just right for it to be served, but if you’ve ever done a real estate deal, you know much of the time you’re hanging out in the gray area and Time of the Essence does not like the gray area.
The factors that need to be considered have been discussed in many court cases all the way up to the Supreme Court of New Jersey, so these factors are very serious to keep in mind.
These are a few factors of them:
- Timing(how much time do you need to give someone when setting a new closing date that’s of the essence?): When attempting to serve time of the essence, the party serving Time of the Essence must give reasonable notice of the new T.O.E. date, and the date chosen must relate to the time that has already elapsed in the deal. If the parties have been waiting six months to close for various reasons, then ten (10) days which is usually standard, may not be reasonable in this case.
- Is the Party who wants to serve T.O.E. the cause / reason the other Party is refusing or unable to perform?: If you desire to serve time of the essence, but the other side isn’t closing because you’re refusing to do something you’re contractually obligated to do, then the courts would argue that you don’t have standing to serve T.O.E. it’s your fault the other party isn’t closing and your hands are not clean to hold them in breach when you’re the one who is in breach.
- Serving T.O.E But Then Discussing a Different Closing Date: You can’t serve T.O.E. and then agree or acquiesce to agree to close at a later date (beyond the T.O.E. date you’ve served), and then hold the other party in breach of the T.O.E. date. This is seen as an act of inconsistency with respect to making the date of the essence and then ignoring your own intention to close on that date.
- Unfinished Business: You can’t serve Time of the Essence, when you yourself aren’t ready willing and able to close or the file has open contingencies. Time of the Essence must account for the needs of the file. For example, if you still need to receive a Smoke Cert for closing, you can’t serve T.O.E. on the Buyer and expect them to perform if the Smoke Cert isn’t issued yet.
So, the next time you’re in a real estate transaction and you ask your Attorney to serve Time of the Essence, you will now be empowered with this knowledge to better understand why they will have to analyze your file to see if it can be served, how it can be served, and if not, what factors are needed for you to feel confident that when you serve it you have strong legal standing to do so.
I hope this helped you get a better sense of this tool and why it’s so delicate. When used correctly it can be very powerful, you just want to make sure if you need to enforce it in court, the Judge will agree, too!
At Molson Law Firm, we understand that each investment presents unique challenges and opportunities. Our approach is tailored to meet the specific needs of our clients, ensuring that they are equipped with the best legal strategies to protect their interests. We encourage prospective clients to reach out and discuss how we can support your investment goals with robust legal solutions. Contact us today to learn how our expertise can enhance your investment business and let’s discuss how we can can work together on your next deal.
This post is for educational purposes only and does not create an attorney client privilege between the reader and Molson Law Firm, LLC.
