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“Time is of the essence” is a common term used in legal contexts, particularly concerning commercial contracts. This phrase makes a contract time-sensitive and reduces any unnecessary delays in the performance of obligations. This article will take you through the importance of the phrase “time is of the essence” in commercial contracts.

What Does it Mean?

In a contract, “time is of the essence” means the parties must complete a task within a specified time. 

The phrase “of the essence” means that time is an obligation of the contract rather than a mere term. 

Where one party does not meet the contract’s obligations, the other party may terminate the contract. Likewise, they may have the scope to claim damages for a breach of contract. In some cases, parties have missed their deadline by mere minutes. Indeed, there may be justification for the other party to rescind or cancel the entire contract in these situations.

You can use the phrase “time is of the essence” to stipulate any number of things. For example, it might refer to the time of delivery of goods, time of payment, or a deadline to complete a specified task.

Contract Types

Any contract that requires one party to complete set duties within a specified period will usually include a “time is of the essence” clause. More specifically, for contracts where times and dates are vital and mandatory for completion, will use this clause to make it an obligation.

For example, in contracts for the sale of shares, where rapid changes in value are common, such a clause is standard. Further, contracts that have an essential release date, such as contracts for the release of a book or music, will utilise this clause to ensure that parties meet the agreed deadlines.

On the other hand, contracts where time is not considered material or essential to the contract will not usually include this clause. The courts often consider that where a contract is for non-goods, such as construction contracts, minor deviations from the schedule are not critical.

What Happens if a Contract Does Not Include This?

If a contract does not contain a time is of the essence clause (or similar), it is often assumed that time is not the most important factor of the agreement. Alternatively, time may be considered a term of the agreement rather than an obligation. In that case, it will be difficult to terminate the contract on these grounds.

Enforcement 

Often, a failure to meet the conditions of a time is of the essence clause will result in a breach of contract. However, this will not necessarily make the court liable for termination. For example, consider a contract for the sale of goods. A failure to deliver goods on time will likely be a material breach of the contract, making it liable for termination. 

However, suppose a purchaser fails to pay for the goods on time. Here, it is unlikely a court will consider this to be a material breach of the contract. This is because the breaching party can rectify their failure to pay in other ways. For example, they might pay interest on late payments. Ultimately, if the court does not consider the clause reasonable, they may not enforce it.

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Additionally, contracts that explicitly use the phrase “time is of the essence” will have an easier time enforcing this clause. On the other hand, simply implying that time is of the essence could cause misunderstandings and prevent it from being enforceable. 

Consequences

Failure to comply with a “time is of the essence” clause may result in several legal consequences. For example, you might:

  • be held liable for financial losses caused by the delay;
  • receive an injunction forcing you to fulfil the duty; or
  • lose the contract. 

Overall, failing to comply with such an obligation will negatively impact, particularly financially and to your business relationships. 

How to Include

If you wish to make time of the essence in your commercial contract, you should:

  • ensure the time outlined is reasonable;
  • clearly articulate the obligation; and
  • expressly use the phrase “time is of the essence”.

Alternatively, you may wish to make time of the essence concerning every provision of the agreement. In that case, you should expressly state so. Further, like all terms in your contract, ensure that it is fair. Otherwise, you will have a hard time enforcing an unfair contract term.

Key Takeaways

You should consider including a “time is of the essence” clause when entering a commercial contract. Some key things to note about this is that it:

  • creates a legal obligation;
  • is relevant to most commercial contracts; and
  • has consequences in the instance of one party’s failure to meet.

If you need assistance with your commercial contracts, LegalVision’s experienced contract lawyers can help. You can contact them on 1300 544 755 or by filling out the form on this page.

Frequently Asked Questions

What does “time is of the essence” mean in a commercial contract?

In a contract, “time is of the essence” means the parties have an obligation to complete a task within a specified time. The phrase “of the essence” means that time is an obligation of the contract rather than a mere term. Where one party does not meet their obligations, the other party might terminate the contract and claim damages for a breach of contract.

What happens if I fail to comply with a “time is of the essence” term?

Failure to comply with a “time is of the essence” clause may result in several legal consequences. For example, you might be liable for financial losses, receive an injunction forcing you to fulfil the duty or lose the contract to termination. 

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