By Robert S. Kutner, Esq.
Partner, Casner & Edwards
When a typical real estate agreement is prepared, it includes dates for various contingencies as well as acts to be completed by buyer and seller. The buyer may have a date by which to complete a home inspection and notify the seller of any defect; a date by which to obtain mortgage financing contingency or waive the right to withdraw and obtain the return of the deposit; and a date by which buyer and seller must sign and exchange a
Purchase and Sale Agreement. If one party does not satisfy the contingency by the date specified or perform an act by the date set, it may be claimed by the other party that there has been a waiver of the contingency or a breach of the agreement. It is important for real estate brokers to understand how Massachusetts law views dates in real estate agreements,
since they are not always treated as binding deadlines.
Making a Date Enforceable
To make a date enforceable as a deadline, a court must be convinced that the parties did not intend that the dates (and times) in agreements should be flexible (in accordance with “commercially reasonable” standards), but that
they intended they be fixed. Generally, to transform a date into an enforceable deadline, it is necessary to include the magic phrase – “time is of the essence.” Once that date becomes an enforceable deadline, flexibility
is eliminated and failure to meet the deadline will breach the agreement. To alter the date, the parties must extend the deadline, either by express agreement or by implication. Such was the holding in the 2002 Appeals Court decision, Owen v. Kessler.
In Owen v. Kessler, Stephen Wardle and Tara Owen were competing buyers who each desired to purchase a property in Chatham owned by Sidney Kessler. Owen rented the property where she both lived and operated a gift shop. Next door, Wardle owned a goldsmith business that
he desired to expand. Through his buyer’s agent, Wardle submitted a standard Cape Cod and Islands Real Estate Board Offer To Purchase form. The accepted offer stated: “The parties hereto shall, on or before 11:00 a.m. on September 26, 1997, execute a Purchase and Sale [P&S]
Agreement which when executed, shall be the Agreement between the parties hereto”; and “Time is of the essence hereof.” An inspection contingency contained the same deadline. The offer was accepted in writing by seller Kessler. Owen learned from her neighbor, Wardle, of his offer and
that it had been accepted by the seller, Kessler. She submitted a “back-up” offer, contingent upon the sale from Kessler to Wardle falling through. The purchase prices of the two offers were identical. At one point Wardle
experienced problems completing inspections that were required by the same date as signing the P&S. Ultimately, no extension was agreed upon and none became necessary. However, an issue arose regarding the P&S.
Held to Your Deadlines
Wardle’s agent received the P&S that had been signed for Wardle by 10:45 a.m. on September 26, 1997. Although his office was a mere four minutes from the listing broker’s office, he took his time before delivering it.
A few minutes after the deadline had passed, the listing agent called Wardle’s agent, advising him that since a signed P&S had not been delivered, Wardle had breached the terms of the accepted offer and the property was being sold to someone else, namely, Owen. Wardle’s agent responded by delivering the signed P&S to the listing office at approximately 11:20 a.m., 20 minutes after the deadline. When Kessler refused to sell to Wardle, Wardle sued for specific performance.
Although the trial judge found that the 20 minute late delivery of the P&S was inconsequential, the Appeals Court disagreed, fi nding that Owen had the right to purchase, pursuant to her “back up” offer. The Court ruled that
under Massachusetts law, “parties will be held to the deadlines they have imposed upon themselves when they agree in writing that time is to be of the essence.” It found that the deadline for signing the P&S was a condition
of Wardle’s agreement and if that condition had not been met and had not been waived, then the parties’ obligations to each other “were extinguished.” The Appeals Court stated that “[i]f the parties were inclined to insert a specific time and date in their agreement as a deadline, they ought to be held accountable for that. To hold otherwise, under these circumstances, would render “time is of the essence” clauses meaningless. Once the 11:00 a.m. passed, the seller no longer had an obligation to the buyer.
“Time is of the Essence” Clause
While noting that time deadlines can be waived by words or conduct of the parties, the Appeals Court also ruled that there had been no words or
conduct that established waiver of the “time is of the essence” clause. Even though there had been a conversation with Kessler about a possible extension to complete the inspection, there was never an official extension
and the Appeal Court ruled that “a seller’s indication that he is willing to grant an extension if one is needed is different from actually granting one; nor does such an indeterminate expression automatically constitute a waiver of the time is of the essence clause, especially where the anticipated reason for the extension does not materialize.”
The Court distinguished the facts from another Massachusetts case, McCarthy v. Tobin, where the attorney for the seller had delayed returning a draft P&S for signature of the buyers until after the time deadline set in the offer. That made it impossible for the buyer to sign and return the P&S by the deadline in the accepted offer. There the Court found that the deadline had been waived by implication, despite inclusion of the language that “time is of the essence.”
Fearing that real estate agreements may fall through if time deadlines are not met, some attorneys prefer to omit the phrase “time is of the essence.” This omission can create more problems than it solves. For example, without the phrase, how will the buyer and seller know what the deadline is for the buyer to complete a home inspection and notify the seller than he wishes to terminate? If the phrase is not included and notice is given one day after the stated date, there will be uncertainty whether the termination was effective. Similar uncertainty will be created with regard to mortgage contingency deadlines. If the deadline passes and the buyer does not withdraw, is the
contingency waived? In addition, how will a broker acting as escrow agent know when there has been a failure of the buyer to close, if the time deadline for closing will not be strictly enforced?
On balance, most attorneys favor inclusion of the phrase “time is of the essence” in order to provide certainty. The parties can always agree to modify that date. With a little care, problems can be minimized.