“Time Is of the Essence” Clauses in Residential Real Estate Contracts
Jan 28, 2022 | Written by: Share|
When buyers or sellers enter into a contract of sale for the purchase or sale of residential real estate in New Jersey, they often think that the closing date written in the contract is set in stone and will definitely be the date of the closing. However, in New Jersey, under case law, either party may request a reasonable extension of the closing date, and the other party cannot refuse such a request. In fact, the NJ Realtors’ standard contract actually reads “The closing will be on or about _________, 20__” which should indicate that the closing date is not a hard and fast date.
If the parties agree to a “time is of the essence” closing date, only then will the date in the contract be enforceable. However, agreeing to a “time is of the essence” closing date is never a good idea for the following reason: in the event that one party is unable to close on that date, even for a good reason or circumstances beyond their control, such as a medical emergency, a blizzard, or a delay caused by a lender or title company, the party who is unable to perform will be liable for breach of contract. If the parties agree to a “time is of the essence” clause, making the closing date an enforceable term of the contract, then a party’s failure to close on the date specified in the contract would constitute a material breach of contract.
This does not mean that, without an initial “time is of the essence” clause, the closing date can be extended unreasonably. New Jersey case law provides a process to make sure that the residential transaction cannot be delayed without limit. Once the closing date specified in the contract has passed, the party who is ready to close can then set a new date for the closing and declare that closing on that date is “time is of the essence” by sending an official notice to the other party. The notice must be clear, distinct, and unequivocal and set a reasonable new date – usually not more than ten to fourteen days from the original date in the contract. At that point, if the party receiving the notice does not close on the new date set in the notice, then they will be in breach of the contract and subject to liability for that breach. The non-breaching party is entitled to legal remedies such as specific performance, which compels the breaching party to proceed with the contract, or the receipt of damages incurred due to the delay. These damages would include, on the buyer’s part, mover’s rescheduling fees, storage fees, lodging, and lender fees for rescheduling the closing; and on the seller’s part, carrying costs for the house, and lodging fees if the party moved in reliance on the closing date.