When is a closing date not a closing date? When it is set forth in a typical residential contract for the sale of a home. In New York, it is legally assumed that if a contract does not specify time of the essence, then it is not time of the essence. Typically, a residential contract will provide that the closing will occur “on or about” a specific date. This means that such a date is an approximate target and not necessarily the precise date on which the closing will occur. Unless the contract specifically states the date is “time of the essence,” both parties are entitled to a reasonable adjournment.
[NOTE: Time of the essence closing dates are more typical in residential matters where a person is purchasing directly from a developer/sponsor. Further, it is very common to see a time of the essence clause in a commercial real estate contract.]
At some point in all real estate transactions, the parties need to set a date certain for closing. Moving companies need to be hired; people need to pack; kids need to be enrolled in school; in short, everyone needs to get on with their lives. When all of the parties are working together, targeting and sticking to a mutually convenient date is generally not a problem. But what do you do when that is not the case?
Where time is not made of essence in original contract for sale of real estate, one party may, unilaterally, give subsequent notice setting a time of the essence or “law” date, Notice must be: (i) clear, distinct and unequivocal setting forth the time, date and location of the closing; (2) fix a date which provides a “reasonable” time within which to perform; and (3) informs other party that failure to perform by that date will be considered default. Once the date specified for the closing in the contract has passed notice should be sent to the other party setting a time of the essence closing date for a reasonable period after the date of the notice. What constitutes “reasonable” is fact specific; the nature and object of the contract, the previous conduct of the parties, the presence or absence of good faith, the experience and sophistication of the parties, and the possibility of hardship or prejudice, are all factors that could be considered in determining “reasonableness”. Most industry professionals consider thirty (30) days is a safe definition of “reasonable”.
If the buyer fails to close on the time of the essence date specified by the seller the buyer could lose the down payment.
If the buyer sends the time of the essence notice, and the seller fails to show up with a deed ready for transfer, the buyer can declare the contract null and void and sue the seller for the return of the down payment and for any expenses incurred in preparing for the purchase. That includes money spent on the mortgage, survey, title insurance and legal fees and any living expenses incurred as a result of the seller not being ready. As an alternative to voiding the contract, the buyer can demand ”specific performance” of the contract.
To obtain the remedies specified above, the party setting the time of the essence date needs to demonstrate that they are ready, willing and able to perform on law date. This standard is met by the seller’s appearance at closing with the necessary closing documents prepared to transfer clean title to the property. For a buyer, this standard is met by appearing at the closing with the checks required for the seller and other necessary closing deliveries. A court reporter should attend the closing to officially record the preparation of the party who intends to hold the other party in default.