Time Is of the Essence (or Not) in New York Contracts
There is a small but very significant principal in New York: time is not of the essence. More specifically, as the New York Court of Appeals put it, “time of performance is not normally of the essence unless the contract so states or one of the parties has unequivocally declared it upon proper notice.” ACD Orange, Inc. v. Coyote Acres, Inc., 7 N.Y.3d 484, 486 (2006).
This basically means that the date of performance or closing to which the parties to a transaction agree isn’t a hard and fast deadline. Unless a contract says so or there is some “unequivocal declaration” by one party, the parties have a reasonable time after the intended closing or performance date to perform under the contract or to do what needs to be done for closing.
Depending on your position in the transaction, this may suit you just fine, or it may be worrisome because you want closing or performance to happen on the agreed upon date. If you’re the latter, then the best practice is to actually include a clause in your contract that says “time is of the essence” verbatim; however, in certain circumstance where a contract doesn’t include that term, a seller could convert a non-time-of-the-essence contract into a contract where time is of the essence by giving a buyer “clear, unequivocal notice” as well as reasonable time to perform. Id. At 490.
Understanding “Clear, Unequivocal Notice”
It is a high bar for that “clear, unequivocal notice” and for a “reasonable time.” Id. The Court in ACD Orange, Inc. was contemplating whether time was of the essence in a real estate transaction, which is one of the more common transactions for time is of the essence issues to arise. It is important to note that this is a general principle of New York law applicable to commercial agreements.
While typically there are no ‘magic words’ in contract law, this is one of the few exceptions and the use of the specific words “time is of the essence” is important to avoid any problem in the future.
Now, if you don’t want time to be of the essence, then the safest thing is to negotiate the contract to include some language reflecting that the parties are entitled to a reasonable time after the intended date of performance or closing to perform under the contract or to do what is necessary for closing.
Work with an Experienced Business Attorney for Your Contract Needs
Regardless of which side you find yourself on, it is important to sit down with your attorney and talk about whether or not you want time to be of the essence, and how the contract can be drafted to reflect that. Once the contract is executed, it is a high bar to convert the contract to a time is of the essence contract, and it can be difficult to objectively determine the “reasonable time” to which the other party is entitled.
While there is hope if you find yourself in that position, your best course of action is being proactive and working with your attorney to make sure that you have a solid contract reflecting your interests as best as possible.
To learn more about what Suri Law can do for your and your business, please call us at (212) 444-8244.
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