An important clause in the agreement of purchase and sale states that “Time shall in all respects be of the essence....” It continues that time for doing something can be extended or shortened by a written agreement between the buyer and seller.
More Typically Time Needs to be Extended than Shortened
The time of essence clause mostly affects situations in which more time is needed to meet a condition. Here are a two examples:
- The offer is conditional on the buyer obtaining a satisfactory home inspection by midnight, 10 days from offer acceptance.
- Seller agrees to extend a condition verbally due to the weekend.
1. The Condition Expires Midnight Friday
Buyer A’s offer is conditional on a home inspection by say midnight Friday. That Friday morning--the final day for meeting the condition--the buyer, the buyer’s sales rep and the home inspector are at the property. By noon the inspection is over and the buyer’s agent informs the listing salesperson that he should have the buyer sign to remove the condition by some time that afternoon. By Saturday morning the listing salesperson has not received any news. Given that the condition expired at midnight, the listing sales rep waits through Saturday morning without receiving any news. He now informs Buyer A’s rep that their offer is null and void.
The Buyer A’s rep asks for an extension but is told that he should have asked before the offer expired. What’s more, Buyer B, waiting in the wings, is now submitting an offer. Buyer A can now submit a new offer with the understanding that he will be competing, something Buyer A fails to do. On Sunday Buyer B’s offer is accepted by the Seller.
Dates Should be Practical
Had Buyer A asked for an extension when the offer was alive, the seller might still have refused, especially knowing that Buyer B was waiting for the outcome of the first offer. So a conditional date should be practical, giving the buyer a realistic time to fulfill it. The buyer should then make a good faith effort to do what he can to have the condition met. Otherwise the “time of the essence” clause can nullify the offer. So it’s important that dates in a contract be adhered to.
2. Seller Agrees to Extend Verbally
It’s Friday before a holiday weekend and Buyer 1 asks for an extension of his financing condition. The parties want to wait until after the long weekend to deal with it formally and agree to extend the condition verbally until Monday night. No one expected what happened next. On Monday the seller is told of another buyer.
Seller Has to Honour the Verbal Extension
The listing rep informs Buyer 1 that the verbal extension will no longer be valid after Monday night and that a 2nd offer will be presented on Tuesday. Buyer 1 could not realistically meet his financing condition inside the long weekend as lenders are closed. Buyer 1 now has to compete with another offer and Seller accepts the offer from Buyer 2.
A request for a written extension prior to Friday beyond the long weekend would have been the right action to take.