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The Essence of a “Time of the Essence” Letter

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  • Posted on: Sep 28 2018

The date on which parties to a real estate contract must close is frequently subject to litigation.  Sometimes real estate contracts provide for a closing date that is “time of the essence” and, in such cases, the parties must close on that date or risk default.  In the event that a buyer fails to close on a “time of the essence” closing date, he risks being declared in default by the seller and losing his down payment (and being a party to any related litigation that may result therefrom).  Similarly, if a seller fails to close on a time of the essence closing date she risks being declared in default by the buyer and being exposed to the possibility of litigation for specific performance of the contract and related monetary damages.

If, however, there is a closing date in the contract, but it is not “time of the essence,” “either party is entitled to a reasonable adjournment” and, “[i]n granting the adjournment, the other party may unilaterally impose a condition that time be of the essence as to the rescheduled date.”  Miller v. Almquist, 241 A.D.2d 181, 185 (1st Dep’t 1998) (citations omitted).   Whether the “time of the essence” condition is effective, “is contingent on the specificity of the notice and on the reasonableness of the time period. Id.  To effectively make a closing “time of the essence,” a party to a real estate contract must set a new date and give the other party “clear, distinct, and unequivocal notice to that effect giving the other party a reasonable time in which to act and by informing the other party that if he or she does not perform by that date, he or she will be considered in default.”  Cave v. Kollar, 296 A.D.2d 370, 371 (2nd Dep’t 2002) (citations and internal quotation marks omitted).  Thus, where a letter “merely demand[s] that [a party] fix a closing date [it is] inadequate to make time of the essence because it [does] not clearly and distinctly set a new date and time for closing….” Id. (citations omitted).  Finally, if the party receiving the “time of the essence” letter fails to object to the chosen closing date prior thereto, that date could be deemed “reasonable as a matter of law.”  Shimuro v. Preston Taylor Products, LLC, 146 A.D.3d 729, 730 (1st Dep’t 2017).

The law related to “time of the essence” letters in real estate transactions was addressed by the Second Department in Rodrigues NBA, LLC. v. Allied XV, LLC (September 19, 2018).  The parties in Rodrigues, entered into a contract for the sale of real property in Queens County, New York and the purchaser made a $375,000 down payment.  The parties agreed to adjourn the closing date in the contract.  Thereafter, seller sent a “time of the essence letter” dated June 21, 2016 that set June 30, 2016 as the closing date.  After buyer rejected the June 30 closing date and did not appear at the closing, seller commenced an action to recover damages and sought to retain the down payment as liquidated damages pursuant to the contract.  Buyer, in turn, sought the return of the down payment, alleging that seller breached the contract as a result of ongoing administrative proceedings affecting the property.

The Second Department affirmed the denial of seller’s motion for summary judgment on the complaint and dismissing purchaser’s counterclaims.  In so doing, the Court recognized that the motion court “concluded that the time of the essence letter was a nullity because it did not provide the buyer with a reasonable amount of time in which to act….”  The Court also noted that where “there is an indefinite adjournment of the closing date specified in the contract of sale, some affirmative act has to be taken by one party before it can claim the other party is in default; that is, one party has to fix a time by which the other must perform, and it must inform the other that if it does not perform by that date, it will be considered in default.”  Rodrigues (citations, brackets and internal quotation marks omitted).

Reasonable time to act is critical in order to make time of the essence and:

[w]hat constitutes a reasonable time for performance depends upon the facts and circumstances of the particular case.  Included within the court’s determination of reasonableness are the nature and object of the contract, the previous conduct of the parties, the presence or absence of good faith, the experience of the parties and the possibility of prejudice or hardship to either one, as well as the specific number of days provided for performance.  The determination of reasonableness must by its very nature be determined on a case-by-case basis.  The question of what constitutes a reasonable time is usually a question of fact.

Rodrigues (citations, brackets and internal quotation marks omitted).

Among other things, the Second Department in Rodrigues, found that the seller failed to make a prima facie showing that the “time of the essence” letter “provided the buyer with a reasonable time within which to close.”

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