Punctuality - How important is it to be on time?

In plain English, if something is "of the essence" it is very important or essential. In a contract term, however, stating that "time is of the essence" has a further meaning. If time is of the essence for a contractual deadline, even a slight delay can have drastic effects.

Contractual rights

If time is of the essence for exercising a contractual right, then the right is generally lost if not exercised within the time set. 

Contractual obligations

If time is of the essence for performing a contractual obligation then the time limit is a condition (sometimes referred to as a fundamental term) of the contract. This means that any delay in performing the duty resulting in a breach of the contractual obligation will be grounds for terminating the contract (in addition to any other available remedy).

The smallest delay can trigger a time of the essence provision, as shown by a case concerning a contract to buy a flat in Hong Kong. The contract expressly made time of the essence for completion to be by 5 pm on 30 September. It also stated that any breach by the buyer would lead to forfeiture of the deposit and allow the seller to terminate the contract. The buyer tendered the purchase monies just ten minutes late. The seller declared the deposit forfeit and the contract terminated. The court confirmed the seller's right to do so.

Drafting tips

If the contract includes a termination clause, deal with termination for delay within that clause. There is no benefit in having a separate "time of the essence" clause, but there is a risk of inconsistency and confusion. For instance, you may see a payment clause that makes time of payment of the essence, while the termination clause provides that the contract may be terminated if a payment is more than 14 days late.

Dealing with Consumers

If you have the benefit of the phrase in your contracts and you deal with consumers then you should note that the regulators responsible for enforcing the Unfair Terms in Consumer Contracts Regulations 1999 have said "time of the essence" is not plain and intelligible, because consumers cannot understand it without legal advice. They have also identified unequal termination rights and rights to terminate on grounds of trivial breaches as potentially unfair terms.  You should seek legal advice in relation to consumer contracts to ensure they remain enforceable

What if time is not of the essence?

If the contract does not expressly state time to be of the essence then the general rule is that performance of duties and obligations should be within a reasonable period. Of course, what is a reasonable period may vary depending upon factors such as the nature of the contract, the obligation to be performed and who the parties to the contract are.

Posted on 03/09/2015 by Ortolan

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