Time Is of the Essence in Contract Law

“Time is of the essence” is a legal phrase in contract law that makes meeting deadlines a fundamental term of the agreement. When a contract includes this clause, failing to meet specified deadlines is considered a material breach that can allow the other party to cancel the contract and sue for damages.

Without this phrase, minor delays typically don’t destroy a contract. Courts recognize that some flexibility is reasonable in most business dealings. But when time is declared to be “of the essence,” strict punctuality becomes mandatory: even small delays can have serious legal consequences.

This clause appears frequently in certain types of contracts where timing is genuinely critical:

Real estate transactions: Closing dates are often time-sensitive because buyers have mortgage commitments, sellers have purchased other properties, or timing affects substantial financial interests. Real estate contracts in Ontario typically include “time is of the essence” for completion dates.

Commercial contracts: When one party needs goods or services by a specific date to fulfill their own contracts or commitments, delays can create cascading failures.

Construction contracts: Projects with phased deadlines where delays in one stage affect all subsequent work.

Time-sensitive purchases: Buying event tickets, seasonal goods, or anything where value diminishes significantly with delay.

Financing agreements: Loan closings, mortgage commitments, and other financial arrangements with expiry dates.

Option agreements: When you have a limited time to exercise an option to purchase or extend an agreement.

When time is of the essence and a deadline is missed:

The innocent party can terminate: They can treat the contract as breached and walk away without penalty.

No obligation to wait: They don’t have to give you extra time or accept late performance, even if the delay is minor.

Damages: They can sue you for damages resulting from your breach, including:

• Lost profits.
• Cost of obtaining substitute performance from someone else.
• Price differences if market conditions changed.
• Consequential losses flowing from the breach.

Forfeitures: In some contracts, missing deadlines results in forfeiting deposits or other payments already made.

Specific performance denied: If you’re the one trying to enforce the contract, courts typically won’t grant specific performance when you’ve missed a deadline that was of the essence.

Even when time is of the essence, certain circumstances may excuse delays:

Waiver: If the other party accepts late performance without objection, they may waive the right to enforce the time-is-of-the-essence clause for that deadline.

Impossibility or frustration: Events completely outside your control that make timely performance impossible (natural disasters, government action, etc.) may excuse delays.

The other party’s fault: If they caused the delay through their own breach or non-cooperation, they can’t penalize you for it.

Unconscionability: In extreme cases where enforcing the clause would be grossly unfair or oppressive, courts may refuse to enforce it.

Unreasonable deadline: If the deadline set in a notice is unreasonably short given the circumstances, courts may find time wasn’t properly made of the essence.

Real estate purchase: “The completion date shall be December 15, 2024, at 2:00 PM. Time shall be of the essence.” If the buyer doesn’t have their money ready by 2:00 PM on that date, the seller can cancel and keep the deposit.

Supply contract: “Delivery must occur by March 1, 2025. Time is of the essence for this deadline.” If the supplier delivers on March 3rd, the buyer can reject the shipment and buy from someone else, even if the two-day delay caused no actual harm.

Construction project: “Phase 1 must be completed by June 30, 2025. Time is of the essence.” Missing this deadline allows the owner to terminate the contract and hire another contractor to finish.

Option to purchase: “This option must be exercised by written notice on or before October 1, 2024. Time is of the essence.” Notice delivered on October 2nd is invalid and the option expires.

“Time is of the essence” is a powerful contract clause that makes meeting deadlines a fundamental obligation. When included, even minor delays can constitute material breach, allowing the innocent party to terminate the contract and sue for damages. Without this clause, courts are more forgiving of reasonable delays.

Understanding when time is of the essence protects you from inadvertently breaching contracts or accepting unfair terms. Whether you’re drafting, negotiating, or performing under contracts, pay special attention to this clause and the deadlines it makes critical.

Contact Pinto Shekib LLP at info@pintoshekib.ca or 416.901.9984 to schedule a confidential consultation about contract disputes.