On December 26, 2013, the Second Department issued a decision in Revital Realty Group, LLC v. Ulano Corp., 2013 NY Slip Op. 08607, illustrating the application of “time is of the essence” in real estate transactions.
In Revital Realty Group, the defendant entered into a contract to sell commercial real estate to plaintiff. “The contract did not make time of the essence regarding the closing date, and it did not contain any mortgage contingency clause.” Approximately two weeks before the closing date, defendant’s “attorney wrote [plaintiff’s] attorney, reminding him” of the closing date and “proclaiming that ‘such date is time of the essence to the Contract.'” Defendant’s attorney pointed out that there was no time is of the essence provision in the contract and proposed a later closing date. The transaction did not close. When plaintiff sued for specific performance of the contract, the defendant answered, asserted counterclaims and moved for summary judgment. The trial court not only denied the motion, it also dismissed defendant’s counterclaims. The Second Department affirmed, explaining:
When a contract for the sale of real property does not make time of the essence, the law permits a reasonable time in which to tender performance, regardless of whether the contract designates a specific date for performance. What constitutes a reasonable time to perform turns on the circumstances of the case. Time may be made of the essence by clear, distinct, and unequivocal notice to that effect giving the other party a reasonable time in which to act.
Here, the contract provided for a closing to take place on March 29, 2012, but did not make time of the essence. Further, as a matter of law, the seller’s attorney’s letter of March 13, 2012, proclaiming “time of the essence” with respect to the closing date was premature and failed to afford the buyer a reasonable time after the March 29, 2012, closing date set forth in the contract within which to perform. Accordingly, the seller failed to demonstrate that it effectively made the March 29, 2012, closing a time of the essence closing date, and the buyer was entitled to a reasonable adjournment of the closing date. Consequently, the buyer cannot be considered in default for failing to appear at the March 29, 2012, closing.
(Internal quotations and citations omitted) (emphasis added).
The term “time is of the essence” has great power in real estate sales contracts. However, as the decision in Revital Realty Group shows, it is, at the end of the day, a contract term (or not, as here), not magic words that can be invoked at any time for any purpose.