Time essence clause has historcally demonstrated an ability to

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What is the ‘Time is of the Essence’ Clause? Examples + Tips

It's a legally binding way of saying, "Timing matters, and you can't afford to be cavalier about it."

You know how a slight lapse in timing can result in catastrophic consequences?

Imagine a high-profile dispute between a leading real estate developer and a contractor.

In this scenario, a multi-million dollar skyscraper project was at risk because the contractor missed a deadline by a mere two hours—thanks to a poorly drafted Time is of the Essence clause. The result? A flurry of lawsuits, financial penalties, and a tarnished reputation.

The Time is of the Essence clause is the legal community's way of emphasizing that time is an integral part of a contract.

Failure to meet deadlines translates to a breach of contract, often accompanied by financial penalties and potential legal actions.

So why should you, as an in-house legal counsel, care deeply about this clause?

Because one small error in drafting this part of the contract could not only nullify the agreement but also trigger a chain reaction affecting multiple departments in your organization. We're talking about disrupted supply chains, exceeded budgets, and missed opportunities in the marketplace.

That’s why, in this blog post, we’re covering everything you need to know to handle Time of the Essence clause like a pro.

What is ‘Time is of the Essence’?

The Time is of the Essence clause indicates that time isn't just a backdrop against which the contract unfolds; it's an essential part of the agreement itself. When this phrase is present in a contract, it signals that deadlines are not mere guidelines but rather hard lines that, if crossed, can trigger serious consequences, including breach of contract.

It's a legally binding way of saying, "Timing matters, and you can't afford to be cavalier about it."

Why does this clause carry so much weight?

When Time is of the Essence is invoked, it moves deadlines from being 'incidental terms' to 'essential terms.' That's no small shift. Essentially, it provides the aggrieved party with immediate grounds for legal action if deadlines aren't met.

This can mean anything from termination of the contract to seeking damages, depending on what the parties agreed upon.

What makes this particularly important for you is the potential for downstream effects in business operations.

Imagine a delayed shipment in a just-in-time manufacturing process or a real estate deal falling through because of missed deadlines.

These scenarios could spell financial and operational disaster, so understanding and properly applying the Time is of the Essence clause can be your shield against such pitfalls.

Here’s how this clause typically appears in a contract:

"Time is of the Essence with respect to all provisions of this Agreement that specify a time for performance; provided, however, that this shall not be construed to limit or deprive a party of the benefits that it may have pursuant to any lawful excuse for delay under this Agreement."

When and why to use the Time is of the Essence clause

For in-house counsel, Time is of the Essence often pops up in the following types of contracts:

• Real estate transactions: Delays in closing dates can have a domino effect on other transactions or financial obligations
• Construction contracts: Time overruns can be expensive and problematic, especially when other dependencies are at play
• Supply chain agreements: Think about just-in-time manufacturing where every delay can lead to halted production lines
• Intellectual property licenses: Sometimes, licensing agreements have built-in deadlines for development or release phases, and missing these can be detrimental.

Why to use it?

Here are some compelling benefits:

• Legal recourse: The clause provides a straightforward path to legal remedies if deadlines are breached. This can be particularly useful for in-house counsel seeking quick resolution to contractual hiccups
• Clarity and commitment: When both parties know that time is a crucial component, it often results in better planning and adherence to deadlines
• Risk mitigation: This clause can act as a safeguard against the cascading effects of delays, helping to keep the business operations smooth and predictable.

When to not use it?

Now, as much as this clause can be your best friend, there are instances where you might want to keep your distance:

• Long-term or complex projects: If there are multiple variables that could cause delays and those variables are hard to control, making time an essential part of the contract might be setting it up for failure
• Unequal bargaining power: If one party holds significantly more power, this clause could be a heavy stick used for unfair advantage in contract negotiations or performance
• Unforeseen circumstances: Pandemics, natural disasters, and other "Acts of God" could make strict adherence to timelines unreasonable and potentially harmful for one or both parties

Is Time of the Essence enforceable?

Legally speaking, the clause holds weight. If you state that time is crucial for the obligations under the contract, courts generally take that seriously.

But—and it's a big but—you've got to be crystal clear on what you mean by it.

If your clause is vague or contradicts other parts of the contract, a court might toss it out like yesterday's news.

For instance, if you've been lax about deadlines in the past, it's going to be tough to enforce a sudden strict adherence to them. Courts often consider the behavior of both parties when interpreting what a contract term really means.

What can make it unenforceable?

Let's say you didn't specify the time, or you placed the clause in some obscure section of the contract. Or maybe you didn't act in good faith.

All these things can make the clause as useful as a screen door on a submarine. Courts look at the fairness and the intentions behind invoking this clause, so you've got to be straight-up transparent about it.

Also read: 6 Essential types of contract clauses you need to know

Common pitfalls of Time is of the Essence clause

By steering clear of the following common pitfalls, you can maximize the effectiveness of the Time is of the Essence clause. These mistakes might seem minor but, trust me, they can lead to massive complications down the line.

#1 Ambiguous wording

It's tempting to use comforting, elastic phrases like "as soon as possible" or "within a reasonable time."

But let's be honest: these terms are ambiguity incarnate, especially when the stakes are high with a Time is of the Essence clause. Here's why they're problematic:

• Subjectivity: The term "reasonable" is open to interpretation. While you may think a two-week delay is reasonable, the other party may see it as a deal-breaker, leading to disputes that could wind up in litigation
• Lack of enforcement: These vague phrases often fail to provide a clear enforcement pathway. You could find yourself wrestling with this ambiguity when seeking remedies for delays
• Potential for abuse: Less scrupulous parties could exploit this fuzziness to justify tardiness or non-performance, making enforcement difficult

#2 Hidden or misplaced clauses

The next big blunder comes from the poor placement of the clause within the contract. How does this happen?

• Lost in the shuffle: Sometimes, this clause gets buried in boilerplate language or annexures, making it easy to overlook. If a dispute arises, one could argue that the clause was not made sufficiently conspicuous, throwing its enforceability into question
• Context is king: Placing the clause in a section that deals with, say, 'Miscellaneous Terms' rather than alongside other crucial deadlines or deliverables can lead to questions about its significance and may dilute its intended impact

#3 Inconsistency

Last but not least, inconsistent timelines within the contract can spell doom. What does this look like?

• Multiple versions: Sometimes contracts go through multiple drafts, leading to conflicting deadlines. This not only causes confusion but also provides an opportunity for the other party to exploit these inconsistencies
• Main contract vs. appendices: If there are differing timelines in the main contract and its appendices or schedules, then you’re creating a playground for disputes
• Impact on related clauses: Inconsistencies could nullify or complicate related terms, such as termination rights or late fees, thereby undermining the entire contract

Also read: 4 Basic Contract Terms & Conditions And How To Write

Tips for writing the Time is of the Essence clause

Applying these tips to draft Time is of the Essence clauses that are both enforceable and flexible, thereby minimizing risks while maximizing clarity.

Taking the extra time now will save you a truckload of time—and potentially money—later.

Also read: Legal Risk Management: From the Playbook of 11 GCs

#1 Be specific and write in unambiguous language

First up, specificity is your best friend when drafting this clause. Here are some things to be sure about:

• Use exact dates wherever possible. For instance, instead of saying "the project will be completed in Q4," go for "the project will be completed on or before December 31, 2023."
• If you can't pin down an exact date, defined timeframes are the next best thing. Say something like "the product will be delivered within 30 days following the receipt of payment."
• Make sure to clarify whether you're counting calendar days or business days. Holidays and weekends can throw a wrench into your timelines

#2 Make it prominent for visibility

The placement of this clause is crucial:

• Stick it near other critical contract terms, like financial commitments or key performance indicators
• To make it even more noticeable, use bold or underlined text. If your contract is particularly long, consider adding it to a table of contents.

Example:

Don't bury the clause in a 'Miscellaneous' section. Instead, feature it prominently in the 'Terms of delivery' or 'Payment terms' section and bold it for added visibility.

Also read: How to Improve Contract Visibility Across Your Organization

#3 Align your timelines

Inconsistent timelines in a contract are a disaster waiting to happen:

• Make sure to cross-reference the "Time is of the Essence" clause wherever time-related commitments are mentioned in the contract
• Double-check all versions and drafts of the contract to ensure they're consistent with the finalized "Time is of the Essence" clause
• If you amend any timelines, don't forget to update all related clauses, such as termination rights or late fees

Example:

If one part of the contract says "payment within 30 days" and an appendix says "payment within 45 days," rectify this inconsistency and make sure both sections reflect the same, correct information.

#4 Provide for exceptions

Unforeseen events can and will happen. Make sure your contract accounts for them:

• A force majeure clause can cover you for uncontrollable events like natural disasters or civil unrest. Outline the procedure for renegotiating timelines in such cases

• Add a mechanism for timeline extensions, detailing the conditions under which extensions can be granted
• Require parties to take specified actions to minimize delays, in case the unexpected occurs.

Example:

Include wording like,

"In case of a force majeure event, both parties may renegotiate the agreed upon timelines without incurring penalties, provided that written notice is given within seven business days of the force majeure event."

Also read: 10 Tips to Maintain Clear Contract Language

Case study: More v. 1362279 Ontario Ltd. (Seiko Homes)

This Canadian case is a real eye-opener. In a nutshell, a seller tried to back out of a real estate deal citing a brief delay in receiving closing funds from the buyer.

The Time is of the Essence clause was in the contract, but it didn't specify a 5 pm deadline for the closing.

The seller terminated the agreement at 5:11 pm and even tried to return the mortgage funds while keeping a $15,000 deposit.

Takeaways:

• Specificity matters: The contract didn't specify a strict 5 pm deadline for closing. In the absence of an explicit time, the seller's hasty move to terminate the deal was ruled as acting in bad faith. So, when you're drafting contracts, if you want a rigid timeline, spell it out
• Reasonableness is key: The court observed that, given the challenges posed by the COVID-19 pandemic, some flexibility and common sense should have been applied. So, always be open to renegotiations and extensions in case of unforeseen delays.

Also read: Ensuring That Your Electronic Contracts are Legally Binding

Practical tips for in-house counsel to handle Time is of the Essence

#1 Review existing templates

First things first, look at the templates you're already using for contracts. Make sure they're up-to-date, especially concerning "time is of the essence" clauses.

#2 Double-check for consistency

Once the contract is drafted, go back and ensure all time-related terms are aligned with the Time is of the Essence clause. Check the main contract, appendices, and any addendums.

#3 Include exceptions

Incorporate terms that allow for extensions or renegotiations under specific conditions, like force majeure events or other unexpected delays.

#4 Conduct a legal review

Before finalizing, get another set of eyes, preferably a legal colleague, to review the clause. Sometimes we miss what we've been staring at for too long.

#5 Client or counterparty review

After your internal checks, send the draft to the other party for their review. Encourage them to ask questions to ensure complete understanding.

#6 Document all changes

Keep track of all revisions, who made them, and why. This could be helpful down the road if there's a dispute.

Also read: How to Ensure Contract Version Control

#7 Conduct a final review

Once both parties are satisfied, do one final pass to make sure nothing got messed up with all the edits.

#8 Get it signed

Use a trusted e-signature platform to get all parties to officially agree to the contract. Make sure to store this in a safe, easily accessible location for future reference.

Time-saving clauses with SpotDraft

The Time is of the Essence clause packs a punch and can be your best friend or worst enemy, depending on how you use it.

Get this clause wrong, and you could find yourself embroiled in costly, time-consuming litigation that nobody's got time for.

But get it right, and you've got a powerful tool in your legal toolkit that ensures everybody's on the same page, making your life as in-house counsel a whole lot easier.

How can you get it right easily? By automating the whole contract management process with SpotDraft!

SpotDraft can help you draft, review, and manage your contracts so you're always in compliance and never missing a beat—or a deadline. You'll have more time to focus on the bigger picture, like negotiating killer deals for your company.