Put "Time" on Your Side When Buying or Selling Real Estate

Perhaps the most feared phrase in the real estate industry is "Time is of the Essence." When included in an offer, it is enough to send shivers down the spine of even the most experienced real estate agent or lawyer.  It is a very sharp, double-edged sword, and should be used only in the right circumstances, and only after a buyer or seller thoroughly understand the ramifications of including the phrase in the contact.

Simply stated, if a real estate contact does not say that time is of the essence, then it is not.  The contract only requires performance within a "reasonable" time.  If a buyer does not complete a time-sensitive obligation by the required date, (ex: obtain a mortgage commitment), the obligation is not automatically waived nor is he or she legally in default.  While most people do not realize this fact, every party to a real estate contract should.

Rhode Island courts have repeatedly riled that when a real estate contract does not specifically state that time is of the essence, a party is not in default if he has no fulfilled his obligations by the specified dates.  The party has a "reasonable" time to complete the obligations and must act in good faith in completing them.  What is reasonable and whether the party acted in good faith is determined by a judge or jury on a case by case basis; usually months after the alleged default occurred and at legal costs of several thousands of dollars.

Invariably, what is reasonable to one party is not reasonable to the other.  Closing five days after the scheduled date is not reasonable to the buyer whose belongings are in a moving van and who is paying daily storage and hotel fees.

If a contact includes the phrase "time is of the essence" and a party does not fulfill his obligations by the required date, he is in breach and his non-compliance triggers the default section of the agreement. In addition to getting the deposit, the non-defaulting parting is usually entitled to additional monetary damages.  These could include storage and hotel fees for a buyer, or per diem charges for a mortgage, condo fees and/or real estate taxes for a seller.  If there is a dispute as to whether one party defaulted, legal proceedings must be commenced and the non-defaulting party may not be paid its damages for months or perhaps years after the default.

Unfortunately, whether a default has occurred is not always a black and white issue.  The courts also have held that even where time is of the essence, the non-defaulting party may have waived the provisions by his actions, or non-actions, as the case may be. It is very important that the non-defaulting party does nothing that could be construed as hindering the defaulting party from fulfilling the obligations.

For instance, a seller must make the house readily available for the home inspection or bank appraisal.  A court may construe a seller waiving or extending one time period, such as the mortgage commitment date, as waiving time is of the essence for all sections of the contract, including the closing date.  Therefore, the party who needs time to be of the essence must consistently act that way from the day the contract is signed through closing.  If any extensions are granted, they must be in writing and "time is of the essence" must always be included.

It is extremely important that buyers and sellers understand the complete ramifications of including this phrase in the contract.  If you or your client absolutely, positively have to close on a certain date, and will incur financial hardship if you do not, the phrase should be included.  While time may or may not be of the essence in every contact, time is money...and you don't want it to be your money because you failed why the phrase was, or more likely was not, included in the contract.

Got any legal questions?  Send me an email at AThayer@srt-law.com.


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