A contract of sale for a piece of real estate property will almost always expressly provide that time is of the essence. This clause means that you and the other parties in the agreement must be punctual and fulfill their obligations promptly. Otherwise, if you fail to perform in a timely fashion, the contract may end and you may be liable for damages.
For example, if you change your mind about purchasing the property or cannot attain suitable funding in time for the closing date, you may be in breach and liable to the other parties. In other words, the deadlines are very important; missing them could cost you. You may need to pay for the other parties' damages.
Here are four things you need to know:
- Proceed diligently and in good faith
Stay true to your word, secure funding, fulfil your obligations with diligence. Complete your obligations faithfully and do not interfere with the other party's ability to fulfil their responsibilities. If you are uncertain about your obligations, obtain legal advice.
- How to rely on the clause
If you want to rely on the clause to accuse another party of failing to live up to their obligations, you must demonstrate that you are ready, willing, and able to complete the agreement. In other words, if both parties are not ready to close on a real estate transaction, neither party can rely on the clause to bring an action for specific performance, damages, or termination of the contract.
- When the clause is negated
One way to negate the clause is by waiver. For example, if both parties agree to extend the closing date by two days, then there is a waiver. In general, if one party in a contract takes action(s) to make it clear that the strict contractual provisions will not be enforced, the clause is waived in that instance.
Another way to negate the clause is by-election: For example, if the buyer does not have the requisite financing completed on the closing date, the seller could agree to extend the closing date. In general, when one party breaches the contract and the other parties' consent, the clause is negated by election.
- How the clause is impacted by the Coronavirus pandemic (COVID-19)
COVID-19 has disrupted the economy and caused some institutions which facilitate real estate transactions to have temporarily scaled back or suspended their operations. Further, COVID-19 has caused financial hardships which also have the potential to delay real estate transactions. Delays may cause deadlines to be missed, and you do not want to be on the hook due to a delay caused by COVID-19.
To ensure that your real estate deal is not held up by the pandemic, obtain legal advice to ensure you either:
- enter into agreements properly drafted with COVID-19 in mind, or
- that your existing agreement completes without delays caused by COVID-19.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.