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A Fresh Look at "TIME OF THE ESSENCE" in Real Estate Transactions

CEO Khai Intela
Caption: Understanding the importance of "time of the essence" in real estate transactions. Imagine you're about to buy or sell a house. The anticipation is high, but things don't always go as planned. One of...

Image Caption: Understanding the importance of "time of the essence" in real estate transactions.

Imagine you're about to buy or sell a house. The anticipation is high, but things don't always go as planned. One of the biggest challenges in real estate transactions is nailing down the closing date. In this article, we'll dive into the concept of "time of the essence" and explore its significance in the world of real estate.

The "On or About" Closing Date

Typically, residential real estate contracts contain an "on or about" closing date. This date is not set in stone but rather an estimate agreed upon by both parties at the time of contract. Factors like title exceptions, mortgage contingencies, and availability of involved parties make it difficult to accurately predict a precise closing date. As a result, a reasonably estimated date is chosen, usually 60-90 days from contract signing. Neither party can sue or default on the contract if they can't meet the "on or about" date.

Dealing with Resistance or Lack of Confirmation

However, sometimes one party may be resistant or fail to confirm a closing date. In such cases, the other party has two options to address the situation.

Option 1: Contract Rider or Amendment

The first option is to demand a contract rider or amendment where both parties agree on a firm closing date in writing. This language would state that "time is of the essence" for the new closing date. By doing so, the closing date becomes strict and must be complied with. If either party fails to close on the agreed-upon date, they default on the contract.

Option 2: "Time of the Essence" Letter (TOE Letter)

The second option is to issue a "Time of the Essence" Letter (TOE Letter). This is a unilateral designation by one party, specifying the closing date. However, certain conditions must be met for TOE Letter closings.

Firstly, the TOE Letter must provide reasonable advance notice of the closing date. Thirty days' notice is generally considered reasonable, but the specifics depend on the circumstances of each transaction.

Secondly, the TOE Letter must clearly outline the consequences of failing to close on the chosen date. For example, a buyer may lose their deposit and the opportunity to purchase the property, while a seller could face legal action or the loss of the buyer's deposit.

Thirdly, the TOE Letter must be sent in good faith. The party receiving the letter should have no valid defenses for failing to close, and the sender should not use the letter to force a technical default. Reasonable attempts at rescheduling the closing should be made before resorting to a TOE Letter.

Lastly, on the selected date, the party sending the TOE Letter must be fully prepared to fulfill their part of the transaction. Failure to do so can result in default on their part.

Ensuring a Smooth Closing

To ensure a smooth closing, the party sending the TOE Letter should have everything in place, even if they suspect the other party may not appear. For buyers, this may involve having their lender and attorney ready to proceed. Sellers should have keys to deliver, a prepared deed, and any necessary documentation. Some parties even arrange for a stenographer or court reporter to record the proceedings as evidence of default in case of future litigation.

If you have any questions about "Time of the Essence" closings or find yourself in need of assistance in a pre-litigation scenario, please feel free to contact our offices. We are here to help!

Image Caption: Jeremy Panzella, Esq. Partner - Email: [email protected]

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