- Real Estate Contracts: Time Deadlines Important
Beware "Time of the Essence"
in Realty Contracts
By: Raymond J. Bowie, Esq.
In any real estate sales contract, both the buyer and seller are required to perform certain actions by certain time deadlines. And in a way, the performance deadlines in a real estate contract are like time and tide in the old proverb: They wait for no one. If the buyer and seller fail to meet their contract’s specific time deadlines, they risk being carried away on currents toward possible adverse consequences.
The performance deadlines and consequences for failing to meet them vary depending upon the provisions of the contract the parties choose to use. There are different sales contract forms that can be used for any real estate transaction, and each form of contract has different performance deadlines and different consequences if such deadlines are not met. In Florida, there are various contract forms in use around the state, one provided by the Florida Association of Realtors, another by the Florida Bar, and a number of other contract forms adopted by local Realtor and bar associations. Collier County is fortunate in having available perhaps the best contract forms in the state, developed by the Naples Area Board of Realtors (NABOR) and approved by the Collier County Bar Association.
One major difference between the various form contracts is whether or not the contract states that “time is of the essence” as regards the deadlines for the various buyer and seller performances. “Time of the essence” is a legal term meaning that if a party fails to meet the deadline for a certain performance, that party forfeits any rights under the contract, can no longer enforce the contract against the other party, and perhaps becomes liable for damages to the other party. Hence, a party must take utmost care not to miss, even by one day, any performance deadline where time is stated to be “of the essence”. Missing a “time of the essence” deadline is sudden death to the party’s contract rights.
This is a major risk when buyers or sellers use the form contracts approved by the Florida Association of Realtors or the Florida Bar, since both these form contracts make “time of the essence” as to every single date, deadline or action required of either of the parties. Under either of these contracts, which are regularly used in Lee County, a single missed deadline could imperil the entire transaction for a buyer or seller. Collier County is fortunate in this respect, since the NABOR/Collier Bar contract forms used locally avoid this risky proposition and make “time of the essence” only for the closing date agreed upon by the parties.
This does not, however, mean that there are no consequences if the buyer or seller fails to meet the other deadline dates set forth in the local NABOR/Collier Bar sales contract. Where time is not stated to be “of the essence”, missing a deadline might not automatically cause a default of contract or loss of a party’s rights to enforce other portions of the contract. However, in many provisions of the local contract, a party’s failure to do “X” by the required date of “Y” will result in automatic consequences of “Z”.
For example, in the NABOR/Collier Bar sales contract, the buyer is given 15 days after the contract is signed to do inspections of the property. If the buyer fails to do these inspections within this timeframe and to notify the seller of defective conditions in a timely manner, the buyer is then deemed to have accepted the property in the condition it was in when the contract was signed. The NABOR/Collier Bar sales contract has several similar provisions setting time deadlines for the performances of either the buyer or seller – and stating particular consequences, usually favorable to the other party, that occur if that party fails to act by that deadline.
To assist buyers and sellers in meeting their obligations under the NABOR/Collier Bar contract, following is an outline of some of the more critical time deadlines arising under the local contract and the consequences of failing to meet them.
- Mortgage loan contingency: Customarily, the buyer has 30 days (or other agreed period) from the date of the contract to satisfy himself that he has approval for any required mortgage loan financing. If the buyer fails to give notice of loan approval to the seller within this contingency period, thereafter either the buyer or seller can terminate the contract.
- Title evidence: The seller must deliver to the buyer a copy of either the seller’s existing owner’s title insurance policy or title abstract within 20 days following the date of the contract (or 20 days prior to closing, if that date comes earlier). If the seller fails to do so, the seller will have to pay $200 more in a closing credit given to the buyer.
- Property inspections: As previously noted, the buyer must complete all property inspections within 15 days of the contract date and notify the seller of any defective conditions within 20 days of the contract date. Failing to do so will force the buyer to accept the property in condition “as is.”
- Response to inspections: If the buyer does give the seller timely notice of defective inspection conditions, the seller must agree within 10 days thereafter to make repairs or give a repair credit at closing. If the seller does not agree, the buyer is then allowed 5 days to cancel the contract – and if they buyer fails to cancel, the buyer has accepted the property “as is” including all the defective conditions.
- Homeowners’ association disclosure summary: The seller is required by Florida law to deliver a specific disclosure form to the buyer prior to entering into a contract for sale of any property governed by a homeowners’ association. If the seller fails to deliver the disclosure prior to the contract, the buyer can cancel the contract anytime within 3 days after receiving it.
- Surveys: The buyer must obtain any survey of the property and notify the seller of any encroachments or setback violations shown by it no later than 30 days prior to the contract closing date. If the buyer fails to obtain a survey or raise any objections within this time frame, the buyer thereafter waives any right to object to matters which might have been shown in a survey.
- Closing date: This is the only date as to which “time is of the essence” in the NABOR/Collier Bar sales contract. This means that if either party fails to close on the designated closing date (other than if excused by the other party’s breach of contract), that party is deemed in default and automatically subject to the specific legal remedies afforded the other party. The defaulting buyer forfeits his deposits to the seller. The defaulting seller can be sued by the buyer for damages or specific performance of the contract.
These are specific examples of contract clauses where a party’s failure to do action “X” by the deadline date of “Y” will result in the occurrence of “Z”.
There are a number of other performance deadlines in the NABOR/Collier Bar contract, covering everything from buyer contract deposits to mortgage application deadlines, title examination periods and applications for association transfer approval. Time is not stated to be “of the essence” as regards any of these deadlines, nor does the contract provide any specified consequence if a party fails to meet them. If the party responsible for performing by these deadlines acts late but nonetheless in good faith, there is generally little risk of any adverse consequence or liability. Where time is not specified to be of the essence in a contract provision, a moderate delay in performance will not of itself be deemed a material breach of the contract.
This is far different from the result of missing any time deadline under various other form contracts, such as the contracts approved by the Florida Association of Realtors or the Florida Bar, which make “time of the essence” for every performance deadline. Under those contracts, inadvertently missing even the most insignificant of deadlines can trigger an immediate default of contract – and with it, the loss of a buyer’s deposit or the loss of a seller’s sale.
Contract performance dates, like time and tide, wait for no one. But where the tide will carry the buyer or seller who fails to meet a contract deadline will always depend on the specific terms of the contract the parties have entered into. For guidance in navigating the currents, each party should retain the services of a good real estate attorney early in their transaction.