In any type of New Jersey contract, including real estate, you may think that the set date for closing is a vital part of the agreement. after all, sales are usually timed to coincide with life events (like the start of children’s school or a job change), and if one party is selling a house to buy a new one, a delay in closing can leave them without anywhere to live.
In fact, absent language to the contrary, a closing date, while necessary, is not by itself a mandatory term of a real estate contract unless it is specified that “time is of the essence.” (TIOE).
What is a TIOE Clause?
A TIOE clause tells the parties (and any court having to interpret the agreement) that the parties intend for events in the contract to occur on the dates stated, and if they do not, it constitutes a material breach of the agreement that could subject a party to voiding the agreement, and/or damages.
Not every real estate contract has this clause, which means that you may not have a right to sue if closing does not happen on the stated date. This is not to say that closing dates are not important-they are, and should be followed, and almost every real estate closing contract has a closing date specified. It just means that if the deal does not close on that date, it does not automatically give rise to a legal claim and a party can not legally walk away from the deal.
This is in recognition that a real estate transaction involves parties other than the buyer and seller, such as lenders, surveyors, contractors, or government offices. Much of these are out of a buyer’s or seller’s control, and can delay a closing, even if the buyer or seller otherwise acted diligently.
Adding a TIOE Clause After Contracting
It is possible for a party to add a TIOE clause, even if it was not in the original contract. If a closing date in a real estate contract has passed, the other party (the one ready to close) can set a new date and declare that TIOE on the new closing date. The notice has to be clear and obvious to the other party.
So long as reasonable time was given to effectuate the new closing date, the new closing date will be enforceable as if a TIOE clause was written into the original contract.
What is reasonable will depend on the circumstances. If the problem is a holdover tenant, a 10-day time is of the essence demand may not be reasonable. This is why it may be advisable to work with the other party, to see what the problem is and how long it is anticipated to take to clear up whatever is holding up the closing.
There is also some case law that the conduct of the parties can alter or amend a TIOE clause. So, any informal negotiation, or agreement to extend a closing, or even a tacit understanding that a problem may take extended time to fix, could alter a TIOE clause sent by one party to the other.
Make sure your real estate agreements say what you need them to. Contact Agnes Rybar LLC, to make sure you have representation in any New Jersey real estate transaction.
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