The phrase “time is of the essence” is one which sometimes appears in contracts but what does it mean and, more importantly, what are its effects?
If time is of the essence for a contractual obligation in a contract then this means that the deadline is a condition of the contract rather than merely a term and it would entitle the innocent party to terminate the contract if the deadline is missed by the offending party, even if only by a small margin. Any provision in a contract which expressly states that time is to be of the essence enables a party relying upon the clause to terminate the contract and, if appropriate, claim damages against the other party if the other party fails to perform an obligation in accordance with the date or time specified in the contract regardless of the seriousness of the breach.
A time of essence provision is therefore a powerful weapon since it can give a minor delay the legal effect of a material breach of contract. The difference between a minor and material breach can usually be significant. While the victim of a minor or partial breach can recover whatever loss the minor breach has caused him, he is still obligated to fulfil his part of a contract whereas the victim of a material breach is entitled to terminate the whole contract.
Time of the essence clauses are typically found in contracts where completion of contractual obligations within a particular time is important, such as contracts for the sale of shares (as share prices may be volatile), contracts for the sale of land, delivery of goods (particularly perishable goods) or for the provision of certain services.
There is no general presumption that time is of the essence and therefore there must be an express clause within a contract for it to be the case. Time of the essence can sometimes be implied into a contract by the Court but that would depend on the circumstances of the case and the rest of the wording of the contract.
Time is unlikely to be considered to be of the essence if the contract has no fixed or ascertainable date for performance or if the contract provides a sanction for any delay, for example payment of damages or interest, all of which would indicate that time was not considered to be of the essence by the parties. It is however possible for a party to make time of the essence by giving a contractual notice making time of the essence in the event that a party wishes to terminate for an unmet deadline.