“Time is of the essence” is a legal term which means that dates written in the contracts are critical dates which must be followed, observed and strictly complied with.
Failure to tend to such matters before the critical dates may give rise to significant adverse consequences. One example would be failure to effect settlement on the settlement date. On the settlement date, the buyer is presumed to be able and willing to settle the purchase. Otherwise, he becomes a party in default.
Consequently, the non-defaulting party (seller) has the right to terminate or affirm the contract, take the deposit and/or obtain damages from the reluctant buyer for loss of a resale of property.
However, there are certain cases where essential dates particularly the settlement dates may be suspended. When the essential date is suspended, time is no longer of the essence. Non-compliance by either party shall not put them in breach of contract.
This is when either party to the contract is unable to meet the obligatory date because of a natural disaster, provided that the affected party takes reasonable steps to minimize the effect of natural disaster on his ability to perform under the contract.
When the natural disaster no longer prevents that party from performing their settlement obligation, the party in default is required to notify the other party that he or she is no longer affected and either party may serve a notice to settle which must state that the suspension has ended. After that they could nominate a new settlement date stating that time is of the essence. The suspension of time having ended, the parties are now obliged to settle on the agreed new date.
Note that time suspension is NOT available when the inability to perform is attributable to:
(2) termination or variation of an agreement between a party and a third person relating to finance, encumbrance or another sale.
As these dates are obligatory, it is suggested that buyers take note of these critical dates of the proposed contract. The parties’ solicitors normally calculate and diarise these essential dates for the parties by careful examination of the contract. However, it is still best for the parties to personally diarise and examine the contract to avoid any miscalculation of the essential dates.
Essential dates in a typical contract of sale of real property include the contract date, payment of initial deposit and balance, start and expiry of cooling off period, building and pest inspection date, finance date, date for payment of transfer duty and settlement date.