Buyers and sellers often think that they will be closing on the purchase or sale of a house on the closing date written in the contract for sale. However, in New Jersey, the closing date is not an “essential” term of the contract. Either party may request, and must be afforded a reasonable extension of the closing date. This can cause angst for buyers or sellers who believe that the contract date is set in stone.
The closing date in the contract is an estimated date for the closing rather than a “hard date”. If the parties agree to a “time of the essence” closing date, it can enforceable. It is, however, unlikely that attorneys for either party would agree to make the closing date an essential term, because it could subject their client to liability for breach of the contract if, even due to circumstances beyond their control, they were not able to close on the date stated in the contract. If time is of the essence, then failure to close on the date specified in the contract would constitute a material breach of the contract and subject the party to liability.
As an example for this discussion, let’s assume that the date closing is not made an essential term in the contract. Once the closing date specified in the contract has passed, the party who is ready to close can then set a new date for the closing and declare that that closing on that date is “time is of the essence,” provided the legal requirements to do so are met. At that point, if the non-declaring party does not close on the new date (usually two weeks after the declaration of time being of the essence), they will be in breach of the contract and subject to liability for that breach. The non-breaching party can seek remedies including specific performance, which compels the breaching party to proceed with the contract, or they can receive monetary compensation for the breach.
The party declaring time to be of the essence must give notice of this declaration to the other party which is clear, distinct and unequivocal. This notice must be in a form required by the contract and must be sent to all parties listed as entitled to receive notice in the contract for sale. If, on the other hand, a clear, distinct and unequivocal notice has been provided, but the party receiving such notice believes the notice is improper, she must object to that the notice was not proper or her failure to object may waive her right to do so later.
When a buyer or seller sends a notice declaring time to be of the essence, the declaring party must afford the other party a reasonable period of time to close. To determine if the time provided is “reasonable,”courts examine the facts of each case, courts will look at the nature of the contract, prior conduct, if the parties have acted in good faith, and hardship or prejudice caused by the amount of time. On a residential real estate contract, providing a minimum of two weeks is customary.
The attorneys at McLaughlin & Nardi are experienced in handling residential (and commercial) real estate closings. If you are buying or selling real property and require legal representation, call or e-mail one of our real estate attorneys.