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SOME CONTRACT DEADLINES ARE FLEXIBLE

Some people believe that all provisions in a contract must be strictly performed. Others have a laissez faire attitude. Both can be right, depending on contract language and circumstances.

Real estate sale contracts are perhaps the most frequent subject of attention to terms Time for performance under a real estate sale contract is similar to time for performance under most contracts. Time is usually not critical unless made so by term of contract or by something connected to the transaction that makes time critical. Why is that important? It is important because one party or the other often thinks time is critical and even go so far as to claim the other party is in breach of contract for failure to timely meet one or more obligations. If the contract or circumstances do not make time critical, delay in performance are not be considered a breach of contract. That can include delay in deposit or even closing on transfer of ownership.

The term "time of the essence" is most often used to describe a deadline for performance that is not flexible. That phrase can be used to make time critical but time can also be made of the essence with language that clearly states there is no flexibility, such as "deadline for second deposit under this contract is 5 p.m. on July 1 and if not made by that time Buyer will be in default." It could require an experienced attorney to determine if time for performance is of the essence and if failure to meet a "deadline" places a buyer or seller in default.

A contract does not have to include a time for performance. When time is not included, the contract is interpreted to provide a reasonable time. When a date is included, that date is not necessarily of the essence, but it can be. Although including "time of the essence" is an easily recognized method of making time for performance critical, other phrases and contexts can also make time of the essence. Circumstances known to the parties can make time of the essence. Absent clear contractual language, there is plenty of room to disagree on the need for timely performance.

The most critical date under a real estate sale contract is usually the date scheduled for closing. If the contract does not include a date for closing, the courts will interpret the contract to provide that closing must take place within a reasonable time. And even when a date is set by contract, failure to close on that date does not necessarily a breach unless the contract makes time of the essence for closing. If time is not of the essence, a seller can usually make it so by demanding closing on the closing date. If time is of the essence, failure to close is a breach, even if the other party does not demand closing. A contract that makes time of the essence for closing will not be interpreted to apply that provision to other dates in the contract (i.e. deposit, inspections etc,) unless the time of the essence provision specifies that it applies.

Even when the contract does not specifically state that time is of the essence, circumstances can make time of the essence. A circumstances making time of the essence would have to be known to the party charged with performance. For example, a person buying a home in foreclosure could be required to perform by the closing date under the contract because failure to timely close would likely cause serious harm to the seller. That was the case in a boat sale I handled some years back, when a buyer entered contract to purchase my client's boat knowing it was scheduled to be repossessed for non-payment on the Wednesday following a closing set for Friday. When the buyer failed to close, the seller found another buyer over the weekend and closed the sale on Monday. The second buyer paid more money and the first buyer was furious he lost a good deal, so he filed suit. The jury agreed that circumstances made time of the essence and that failure to close on Friday, when the buyer knew the boat was scheduled for repossession a few days later, as a material default allowing the seller to escape from the contract and sell to the second buyer.

Other examples of disagreement over time of the essence appear in numerous Florida court rooms. Judges try to avoid a time of the essence requirement where no real harm results from failure to timely perform and performance is tendered shortly after the deadline. But, that is not guaranteed. It is good practice to perform within all contract deadlines, even if time may not be of the essence.

If someone wants to make time of the essence, it can often be done by placing the other party on notice that timely performance will be required. That is not merely placing a date for performance in a contract. One must make it clear in letter or even a pre-contract letter of intent that timely performance of deadlines will be required.

When time of the essence is not mandated by the contract, a reasonable delay will be allowed. That was made clear in the case of Jackson v. Holmes. In that case, Holmes had a contract to buy Jackson's land. The contract was a pre-printed form that had a time of the essence provision contained within a paragraph relating to closing but not a paragraph requiring the buyer to provide a bank loan certification by a certain date. A buyer did not obtain the certification until three weeks after the time specified in the contract and seller claimed the buyer is in default and refused to still close. The buyer sues for a specific performance (meaning the buyer wanted a court order that the seller closes) and the court sided with the buyer. The seller took the case on appeal and lost there as well. The appellate court explained there is no injury to the seller when the buyer failed to meet the technical date specified and no harm of any type. The time of the essence provision dealt only with closing and not with other provisions of the contract.

Even though time may not be of the essence, parties to a contract are well advised to meet dates set by contract. An extension should be considered as soon as it appears a contract date might be missed. But, before taking any steps down the road of delay or discussing amendment to contract, good legal advice should be obtained. This is an area where one false step can result in an expensive lawsuit to find out which party is right.

William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.