10 Dec The Essence of Time in Contracts for the Sale of Land
Parties to an agreement for the sale of land are often surprised to discover that the failure of a party to meet the contractual deadline does not automatically result in a fundamental breach of the agreement, entitling the other to withdraw from same. Consideration of the essence of time occurs where there is a delay in completion of the sale and one party either wants to escape from (rescind) or enforce the agreement (by way of the remedy of specific performance). The phrase “time is of the essence” has been included in such agreements since time immemorial to ensure that the completion date is deemed an essential term of the contract. However, the adoption of this phrase as a formality should be avoided, unless the parties fully apprehend the rules associated with the phrase.
The Rules of Equity
Under the principles of equity, the time for completion of an agreement for the sale of land is not regarded as a fundamental contractual term. These principles were designed to protect a vendor or purchaser of land from being in fundamental breach of the agreement due to the usual challenges with such transactions, such as the difficulty of confirming title. However, there are exceptions to the rules of equity where time is regarded as an essential term:
- where the agreement expressly so stipulates;
- where the circumstances of the case or the subject matter of the contract indicates that the time for completion is of significance; and
- where a valid notice to complete has been given.
The phrase “time is of the essence” is a term of art which, when expressly incorporated, allows the innocent party to immediately rescind the agreement, or pursue specific performance where the completion date is missed.
If the nature of the contract, or its subject matter, requires precise compliance with the date fixed for completion, time will be considered of the essence although the agreement does not include any stipulations regarding time.
By way of illustration:
- the completion date in a sale of property together with assets of a business as a going concern was found to be essential. The rationale for this exception is that the nature of this type of asset is ‘exposed to daily variation’ and time must therefore be an important ingredient in the contract;
- in the sale of leasehold property, the completion date may be deemed important where the term of the lease is close to expiration and delays with completion may result in a reduction in the term of years obtained by the purchaser; and
- in a sale of an ordinary private dwelling-house an exception to the rule has been made where the Purchaser expressly indicated to the Vendor that he had sold his property and was obliged to find another house with a view to immediate occupation.
In the case of the latter, it may be argued that this is not a special circumstance, as properties are usually required for immediate occupation, or the Vendor may require the funds from the sale to complete the acquisition of another property. However, where the Vendor (being aware of the Purchaser’s urgency) assures that a prompt completion will be pursued as an inducement to the contract, the rule of equity may not be applied.
It is also noteworthy that in the absence of a written stipulation in the contract, any time outlined for the delivery of requisitions by a Vendor to a Purchaser will be of the essence.
In instances where time is expressly made of the essence, courtesy may prove to be costly if a grace period is permitted after the deadline elapses, as time then loses its essence. This grace period amounts to a waiver of the right to insist on the completion date as a fundamental term. It should be noted that a waiver occurs even where the grace period is brief. Therefore, parties are advised to expressly vary the agreement by setting a new date for completion to circumvent this consequence and preserve the essence of time.
However, where a waiver occurs all may not be lost, as the parties may ‘re-make the essence’ and turn back the hands of time.
(Re)making the Essence by notice
If time was not specified as a vital term or the provision was waived by the conduct of the parties, the party seeking to enforce the completion date cannot unilaterally (re)make time to be of the essence. At this stage, a notice fixing a new date for completion may be served on the party in breach. However, this notice is not valid unless it is established that the defaulting party is guilty of ‘gross, vexatious and unreasonable delay’.
To avoid a claim that the notice is premature, or that the revised date is unreasonable, the innocent party must consider what constitutes a reasonable notice. The circumstances of reasonableness vary according to the facts of each case. In this regard, the innocent party should consider what remains outstanding to bring the agreement to completion and give notice with sufficient time to achieve same. Other factors which may impact on the question of reasonableness include:
- whether the innocent party has been pressing for completion;
- whether previous notices or extensions of time have been given; or
- whether there are special circumstances warranting a prompt completion.
The Final Words of Caution
Notwithstanding the fact that a valid notice is served, caution is still advised, as the notice may become a double-edged sword against the party seeking to enforce. This is so, as the tables may be turned if the party issuing notice is not also ready, willing and able to complete the agreement on the revised date and essentially falls into their own trap with time.