A contract to purchase real property typically specifies a closing date. This is the date by which the buyer must complete payment to the seller, and in turn the seller transfers title to the property. The closing date is not necessarily when the buyer takes possession of the property—i.e., receives the keys and moves in—which may occur beforehand.
The closing date itself may be flexible depending on the express wording of the sales contract. If the contract states “time is of the essence,” or uses other words to that effect, then there is a legally enforceable duty on both parties to close on the specified date. Simply inserting a closing date in the contract does not, however, create a presumption that time is of the essence.
If one party fails to comply with a closing date, the other may also impose a “time is of the essence” requirement in agreeing to a new closing date. The parties may also agree to waive a previously agreed upon “time is of the essence” clause if circumstances warrant. The key is that both parties have adequate notice that the specified closing time is, in fact, a “drop dead” date to avoid a breach of the sales contract.
Here is a recent example of how these types of clauses work. In this case, a woman agreed to purchase a home in Sullivan County for $75,000. The contract allowed her to take possession of the property prior to closing. The contract further stated a closing date of February 26, 2009, with “time being of the essence.”
The buyer subsequently moved the closing date twice due to scheduling conflicts, each time with the seller's consent. Finally, the seller notified the buyer of a “drop date” of August 11, 2010—more than two years after the original contract was signed—to complete the closing. When the buyer failed to make final payment by that date, the seller began eviction proceedings.
The parties eventually reached a settlement whereby the buyer agreed to a new closing date of December 31, 2010. Once again, she failed to close by the specified date. Indeed, the buyer vacated the house altogether in January 2011, having caused substantial damage which rendered the property uninhabitable. The seller eventually sold the property to a new buyer for $35,000, less than half of what the first buyer agreed to pay (but never did).
Understandably, the seller filed a new lawsuit against the first buyer, alleging breach of the sales contract. Sullivan County Supreme Court agreed with the seller the buyer committed a breach by failing to close by the amended December 31, 2010, “drop dead” date. The buyer appealed, arguing the parties did not agree “time was of the essence” when setting the revised closing date.
The Appellate Division, Third Department, disagreed, and upheld the Supreme Court's award of $26,560 in damages to the seller. The appeals court noted the parties settlement to the first lawsuit included a stipulation that failure to close by December 31, 2010 would result in the buyer's eviction and loss of any other rights under the sales contract. This essentially functioned as a “time is of the essence” clause, the Third Department said, even if those exact words were not contained in the settlement agreement. The fact the agreement gave the buyer two months notice to comply adequately protected her rights, and there was no reason for the courts not to treat her failure to meet the new closing date as a default under the contract.
If you find yourself in a situation, either as the buyer or seller of property, where one party has not lived up to its end of the bargain, it is important you seek advice from an experienced New York real estate attorney. Contact our offices today if you need to speak with an attorney and “time is of the essence.”