Time Is of the Essence Clause in Contracts

Parties to a contract often include a statement that says "time is of the essence." What does this provision mean, and will a court always enforce a "time is of the essence" clause if something goes wrong under the contract?

What Is the Meaning of a "Time Is of the Essence" Provision?

When drafting a contract, you'll see certain terms that serve a specific purpose. For example, you might see a right of first refusal term in a contract. This term serves the purpose of providing one side of the contract the right to purchase a piece of property before anyone else. A "time is of the essence" provision is no different.

A "time is of the essence" provision puts a hard deadline on one party of a contract to perform their end of the agreement. This provision is used to reinforce an obligation one party to the contract already has. The clause can apply to one area of the contract or the contract as a whole.

When a contract has a "time is of the essence" provision, the accompanying deadline becomes a significant part of the contract. Thus, missing the deadline results in a material breach of the contract. When one side materially breaches a contract, the other side can terminate the contract or sue for money damages.

A material breach is different from a nonmaterial breach of contract. If the breach isn't material, then the nonbreaching party (the side affected by the breach) usually can't end the contract or collect money damages unless the contract explicitly says they can. But if the breach is material—like when a term is accompanied by a "time is of the essence" clause—the other side automatically has remedies to recover their losses from the breach.

Why Is "Time Is of the Essence" Language Needed?

If the other party to a contract doesn't perform its obligations on time, you might find yourself late for a very important date, much like the White Rabbit in Alice in Wonderland. Parties to a contract are sometimes surprised to learn that missing a contractual deadline doesn't always amount to a material breach of the contract.

With some contracts, courts often don't consider timing to be essential. In other words, courts don't believe that when one side misses a deadline or deviates in a minor way from the contract, the other side should be allowed to end the contract or recover damages. Instead, courts typically find that as long as one side completed their obligations within a reasonable time, there was no material breach of the contract.

Typically, courts don't consider the following types of contracts to materially depend on timing:

• construction contracts
• real estate sales
• business loans, and
• other non-goods contracts.

In some circumstances, however, the parties would beg to differ. For example, the timing of a loan contract could be very important indeed, if the lender's failure to fund the loan on time means that you can't pursue a lucrative business opportunity. For that reason, lawyers began to use "time is of the essence" provisions in contracts.

When a party wants the agreement to make it clear that the contract obligations must be completed on time, that side will include "time is of the essence" language. You'll either see the phrase included within a clause or on its own as a separate paragraph.

Examples of "Time Is of the Essence" Provision

As noted above, the "time is of the essence" clause can apply to one specific area of the contract or to the contract as a whole. Here are some examples of "time is of the essence" provisions:

• "Time is of the essence with respect to all obligations, deliveries, and payments under this Agreement."
• "Delivery of goods. Supplier will deliver goods to Buyer on the first Friday of every month during the contract term. Time is of the essence as to this provision."
• "Time is of the Essence; No Waiver. Time is of the essence of this Agreement. The acceptance of a late performance with or without rejection or reservation by either party does not waive any rights of that party nor does such acceptance constitute a waiver of the requirement of timely performance of any remaining obligations."

You'll want to make your language clear and enforceable. When you want to add "time is of the essence," the other side might push back and ask for the language to be removed. If timing really is critical, you should use your negotiating power to fight for this provision.

If you need help negotiating a business contract or need advice on when to include a "time is of the essence" provision, consider speaking with a business attorney. A lawyer can further explain the significance of the clause. They can also advise you on how to incorporate the language into your specific contract and what other provisions your contract might need (such as a force majeure clause).

Will "Time Is of the Essence" Provisions Be Enforced?

The modern view held by most courts is that a party's failure to meet the conditions of a "time is of the essence" provision amounts to a material breach of the contract. And, alternatively, most courts will not consider the timing as crucial if this language is left out.

Exceptions to "Time Is of the Essence" Provision

However, even when a "time is of the essence" clause is included in a contract, a court might give the breaching party time to cure (fix) the breach. The court could even disregard the provision completely if other evidence indicates that:

• it would be unfair to enforce the "time is of the essence" clause, or
• the parties didn't intend for the contract to be terminated over a missed deadline.

Sale of Goods and "Time Is of the Essence" Provisions

In contracts for the sale of goods, courts consider delivery dates to be very important. A seller's failure to hit a delivery date is usually considered a material breach of the contract even without a "time is of the essence" provision.

But courts treat payment dates differently. Courts give the parties more leeway to miss payment dates because a late payment can always be addressed by charging interest on the amount due.

More Information About Contracts

For more tips on getting your agreement in writing, read our article about making a legally valid contract. You can look at other kinds of clauses that appear often in written agreements by reading our article on common boilerplate provisions in contracts. If you'd like contract samples and guidance on drafting particular contracts, check out our section on types of agreements.

If you're looking for an A to Z guide to everything you need to know about contracts, check out Contracts: The Essential Business Desk Reference, by Richard Stim (Nolo).