Often, we see contracts, especially contracts for the sale of real property, which contain the words “time being of the essence” after a date or time.  We tell people that these words are very important, because typically they are, as confirmed by the recent unpublished decision from the North Carolina Court of Appeals Strohm v. Morgan.

In Strohm there was a contract to convey real estate which, as is customary, had “time is of the essence” language related to the payment of earnest money.  In Strohm, the earnest money associated with the transaction was to be paid in installments.  The buyers were late on one of their payments.  The buyers, “…testified their agent stated the clause meant payment was due “around” the date and not “on” the specified date.” The sellers apparently decided against selling the house due to a medical issue; however, the sellers relied on the late payment and the time is of the essence clause to support not completing the sale of the property, claiming the buyer had breached the contract. The medical issue by itself would likely not be sufficient to avoid the contract obligations. Rather, the sellers needed to show a breach by the buyers.

The buyers sued the sellers seeking specific performance of the contract or damages after the sellers refused to complete the sale.  The sellers moved for summary judgment, which was granted. The buyers appealed the grant of summary judgment, and the North Carolina Court of Appeals affirmed the decision in favor of the sellers.

In affirming the decision that the sellers were not required to sell the house due to the buyers’ material breach, the court of appeals reiterated some settled principals of contract law that are important for those entering into real estate contracts to understand.

First, the parties will be bound to the terms within an enforceable contract.  This seems obvious; however, people often think they can re-write terms of a contract after the fact which turn out not to be helpful or convenient to their position.  This is not how the law of North Carolina works.

Second, the Court made it clear that a “time is of the essence” clause is a material term of a contract that carries legal significance.  The Court explains, “[i]t’s basic meaning is that performance is due by the time specified in the contract, and such time is an essential component of the contract, which gives one party the right to hold the other party in default for failure to tender performance in strict compliance with the time constraints of the agreement.” In other words the clause is important.  The Court points out that the clause may apply to a closing date, or to pre closing conditions such as payment of earnest money or due diligence money. Simply stated, one needs to strictly adhere to dates in a contract at all times, but especially when a “time is of the essence” clause appears.

In Strohm the sellers did not decide to terminate the contract because of the late payment, they needed to terminate for medical reasons.  This is common.  However, the sellers needed a reason to be able to avoid selling the house.  So, the buyers’ failure to comply with the “time is of the essence” clause provided that reason.

Anytime you are dealing with a real estate contract that you are attempting to enforce, or avoid the obligations of, you should have an attorney, experienced in litigating real estate disputes, review your case.  We routinely work with clients to enforce the material terms of real estate contracts. If you are having a dispute over real property, one of our attorneys would be happy to review the facts of your case and discuss your options with you.