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Is time on your side? Issues with ‘time of the essence’ clauses in property contracts

Delays are one of the main sources of dispute amongst parties to property contracts. In clauses where ‘time is of the essence’, failure to perform an obligation in the time specified by the clause will put the defaulting party in breach of contract and entitles the innocent party to terminate the contract and claim damages.

If time is of the essence, the courts will enforce time limits very strictly. For example, in Union Eagle Limited v Golden Achievement Limited [1997] 2 WLR 341 the defaulting party performed the relevant obligation just 10 minutes late and this entitled the innocent party to terminate the contract.    

Contractual stipulations as to time - that are not ‘time of the essence’ clauses - are required to be performed  within a ‘reasonable time’. What is ‘reasonable’ will depend on the facts and circumstances of each particular case. A breach of these clauses is not itself a ‘repudiatory’ breach which entitles the innocent party to terminate the contract. The innocent party may still claim damages however for losses caused by the delay.

It is not always clear whether ‘time is of the essence’ of a clause or not.  The basic principles are as follows:

  1. Generally, contractual stipulations as to time are not to be regarded as stipulating ‘time of the essence’ unless the parties have expressly specified them to be so (United Scientific Holdings Limited v Burnley Borough Council [1978] AC 904).
  2. Simply specifying a date for when the clause must be honoured is not enough to make time of the essence;
  3. It may be enough for the clause to state that performance within a specific time is a ‘condition’ or ‘condition precedent’ – however, this will depend on the context of the clause and the other terms of the contract (and therefore the most concrete way to ensure time is of the essence is expressly stating it to be so (see point 1 above)).

Even if a clause does not make ‘time of the essence’, where the defaulting party has ‘unreasonably delayed’ in performing an obligation, the innocent party can serve a notice making time of the essence.

Case law has identified that a notice making time of the essence should:

  1. Require the contract to be performed within a reasonable time (‘reasonable’ depending on the facts and circumstances of the case);
  2. State clearly that failing to comply with the notice will result in the contract being treated as being at an end;
  3. Be clear as to the actions required to satisfy the relevant obligations in the contract; and
  4. Be given by an innocent party who is ready, willing and able to perform their obligations upon the expiry of the notice.

If a notice making time of the essence is served, both parties are bound by it.  As such, if the innocent party is not ready to perform on the expiry of the notice, the other party may be entitled to terminate the contract.  Notices making time of the essence should therefore be issued with caution.

It is not uncommon in times of economic uncertainty for parties to try and delay performance of their contractual obligations.  As indicated above, in each case, the obligations and availability of remedies will depend on the specific wording of the clauses and the wider facts and circumstances of the matter.  

Please do not hesitate to get in touch with either Michael DuncanRob Nicholson or Henry Roberts if you require specific advice in relation to any of these issues.

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