Is Time Really of the Essence?

Many real estate purchase and sale agreements contain a specific deadline by which the parties must perform and a clause stating that “time is of the essence.” This clause makes the deadline a condition subsequent, and if the deadline is not met or waived, then the parties’ obligations to each other are extinguished. Although “time is of the essence” clauses are strictly enforced, parties may waive these clauses, either expressly or implicitly, through their words or conduct.

A recent decision by the Massachusetts Land Court discusses the circumstances in which parties may waive a “time is of the essence” clause. The case is particularly illustrative of the interplay between real estate sales and probate actions. The record owner of the subject property was deceased. The seller, acting as “trustee” of the estate of the record owner, entered into a purchase and sale agreement for the property, which contained a set closing date and a “time is of the essence” clause (“Purchase and Sale Agreement”).

Prior to the closing date, however, the parties learned the seller had not yet obtained approval from the Probate and Family Court (“Probate Action”) to sell the property. As a result, the parties twice agreed to extend the closing date to specific dates to allow the seller to reopen the Probate Action. Reopening the Probate Action proved more time consuming than anticipated, however, and the parties were unable to complete the closing by the second extended closing date. The parties further agreed the purchaser would move into the property as a tenant while the seller pursued his efforts in the Probate Action. More than three years after the original closing date, and more than two years after the purchaser moved into the property, the parties were still exchanging email correspondence indicating their intention to move forward with the Purchase and Sale Agreement as soon as the Probate Action was concluded.

When the Probate Action stalled, however, the purchaser filed an action to enforce the Purchase and Sale Agreement. By this time, the property’s value had increased and the previously agreed upon purchase price was now below market. Wishing to obtain a higher purchase price for the property, the seller argued he was not obligated to convey the property to the purchaser because the Purchase and Sale Agreement expired by its terms.

The Court disagreed, concluding the seller waived the “time is of the essence clause” by agreeing to a general extension of the closing date. In support of its conclusion, the Court made two specific findings. First, the seller never communicated to the purchaser that he believed the Purchase and Sale Agreement had expired, nor did the seller take any affirmative steps to restore the firm closing deadlines or the “time is of the essence” clause. Second, the purchaser moved into the property in reliance upon the seller’s promise to convey the property once the Probate Action was resolved. Based on these facts, the Court concluded that the Purchase and Sale Agreement remained in full force and effect five years after the initial closing date.