When a “time is of the essence” clause is contained in a real estate contract, the parties are required to perform certain obligations within a specified time. If a party’s obligation is not performed within the essential time, the non-performing party has defaulted. By defaulting, the other party is provided the opportunity to cancel the agreement. “Time is of the essence” is not a standard provision.
In Inspiration Yacht Charters, Inc. v. Inspiration Yacht Charters II, Inc., 11-14931, 2012 WL 3731704 (11th Cir. 2012), Inspiration Yacht Charters I, Inc. (“seller”) agreed to sell a yacht to KK Aggregates, Inc. for $7,000,000 with a $690,000 security deposit to be held in escrow by KK Aggregates’ broker. KK Aggregates assigned its interest in the agreement to Inspiration Yacht Charters II, Inc. (“buyer”), a corporation established by KK Aggregates to hold the title to the yacht.
The scheduled date of closing was February 12, 2009, and closing documents were executed by both parties in the Bahamas where the ship was delivered to effectuate the transfer. The buyer refused to release the purchase price from escrow and requested additional closing documents, and over the next few days, the attorneys on both sides worked to provide the documentation requested. However, on February 18, 2009, buyer’s counsel advised that the sale was terminated and demanded return of the full $7,000,000 being held in escrow as the required documents had not been provided on the day of closing.
After a bench trial, the district court held that it was the buyer who breached the contract and the seller was accordingly entitled to retain one-half of the $690,000 security deposit pursuant to the contract. The buyer conceded that the contract did not expressly provide that “time is of the essence” to performance but argued that the timeliness requirement could be inferred from the parties’ conduct; however, the district court found that the agreement to delay the closing indicates that time was not an essential part of the agreement, and the mere fact that the agreement specified a particular date for closing did not itself establish that the failure to provide the documents on that date constituted a breach. The district court further ruled, in alternative, that the buyer waived any time is of the essence requirement. On appeal, the order of the district court was affirmed.
“Time is of the essence” clauses are important when negotiating and drafting a contract. A party who intends to rely on such a clause must proceed with caution prior to full performance of the contract, as conduct contrary to such a clause can be constitute a waiver thereof. Contracts delineate the rights and obligations between parties to a certain transaction and are essential to the smooth operation of businesses. In an ideal world, both parties maintain their end of the bargain and perform as promised. However, in the real world, parties breach contracts. Schecter Law has defended and prosecuted breach of contract actions since 1976, and with related experience in transactional law, are well equipped to handle all aspects of contractual disputes.