17.09.14

Time of the Essence Clauses: Clarity is Key

Failure to complete the sale of a property by a specific time, failure to deliver goods on time or failure to complete construction works within schedule may be detrimental to one or more of the parties to a contract. It is therefore no surprise that a "time of the essence" clause is a common feature within agreements for sale of land, sale of goods, construction contracts, and other contracts where timing is crucial. The purpose of a time of the essence clause is to make it clear that failure to uphold a contractual deadline will amount to a material breach of the contract, entitling the aggrieved party to terminate the entire agreement.

In its simplest form, it generally states: "Time is of the essence with respect to all [obligations/deliveries/payments] under this Agreement." Time may also impliedly be of the essence where the very nature of the contract or its subject matter is such that failure to abide by the stipulated deadline would defeat the entire purpose of the contract. This may arise, for example, where the contract is for the supply of a perishable good or sale of a wasting asset, or where the date of performance is critical, such as a contract to photograph a wedding. In the majority of contracts, however, time will not be of the essence by necessary implication. In the absence of an express clause, a post-contractual notice will have to be given making time of the essence in the event a party wishes to terminate for an unmet deadline.

For illustration, in an agreement for sale of land, time will not be of the essence unless the agreement expressly so provides, even if a date is specified for completion. If there is no time of the essence clause, then the parties will have a reasonable time to complete the transaction after the completion date has passed. This approach allows for flexibility in the parties' dealings. However, it may also result in too much uncertainty, since what constitutes a "reasonable time" will ultimately fall to be determined by the court. On the other hand, if a valid time of the essence clause is included in the agreement for sale, then failure to complete by the specified time, even by a few minutes, will amount to a breach of the contract allowing the aggrieved party to terminate the agreement, claim for any damages suffered, and/or, if the agreement allows, forfeit a deposit paid.