When purchasing New York real estate, whether a commercial building or residential property, choosing the correct words with which to provide for the closing date in the contract of sale can make the difference between a smooth closing and a calamitous default. This article discusses the nuances of various terms of art so that a purchaser can protect its contract deposit and position as contract vendee.
New York is unusual in that a contract may recite a specific date for the closing of title but without the addition of certain talismanic words it is not the “Law Date” with regard to the property, meaning the date on which title must close. In order for a closing date specified in a contract of sale to become a Law Date, the specified date must be qualified by the phrase time is of the essence. “Time Is of the Essence” is a term of art that renders the specified closing date an ironclad date. Consequently, when Time Is of the Essence a purchaser’s failure to close on a specified date will result in default; by the purchaser and typically the loss of its contract deposit.
Thus, a closing scheduled for “on,” or “on or about,” or “on or before” or “in no event later than” a specified date does not lock-in the parties to close on that date. Such phrases assure that the parties will be afforded a reasonable time within which to perform the closing, beginning on the specified date. Generally, utilization of one of the foregoing phrases is regarded as permitting a 30-day adjournment of the closing date set forth in the contract.
Often, however, the seller will attempt to set an initial closing date or agree to adjourn a closing date only if Time Is of the Essence with regard to the new date. The purchaser must beware because the new date will be set on an iron-clad basis.
So what happens when a purchaser is confronted with a seller who demands a Time Is of the Essence closing date? There are various strategies which can be implemented by the purchaser to avoid a default if it is not ready to close on the specified date.