The contract is signed and it specifies a closing date to be held "on," "on or about," or "on or before" the closing date specified in the contract (the "Contract Closing Date"). When the client is contacted to schedule the closing, the client tells his attorney that he must close on the Contract Closing Date as he has already scheduled his movers and does not want to put his belongings in storage. Moreover, he has no place to go. The attorney advises his client that he has spoken to counsel for the other party who has advised that his client is not available to close on the Contract Closing Date and needs some additional time to prepare for the closing. The client is insistent that the parties close on the Contract Closing Date as, after all, that date is set forth in the contract.
Unfortunately for the client, the client does not have the right to demand that the closing occur on the Contract Closing Date. Generally, in a real estate transaction, time is not of the essence unless the party can show that serious prejudice will result from the delay. When the terms of sale of real property do not make time of the essence, the law permits a reasonable time in which to tender performance, regardless of whether the terms of the sale designate a specific date for performance. As such, either party is entitled to a reasonable adjournment of the Contract Closing Date which is dependent upon the circumstances under which it is requested. Most attorneys as a rule of thumb will use thirty (30) days as the standard for a reasonable adjournment. However, this is not necessarily the case and the actual reason for the request for the adjournment should dictate what is reasonable. For instance, if a party chooses not to close for matters of convenience only, an adjournment shorter than thirty (30) days may be reasonable. If there is a violation of record which requires extensive construction to cure, an adjournment of more than thirty (30) days may be reasonable.
If the client absolutely needs to close on the Contract Closing Date (so that he will be seriously prejudiced if he does not), the contract must specify a closing date, TIME BEING OF THE ESSENCE ("TOE Closing Date"). Where time is made the essence of the contract, it is binding upon both parties. However, most attorneys will counsel their clients to avoid a TOE Closing Date since its harshness can cut both ways. For instance, if the contract specifies a TOE Closing Date, Purchaser's loan commitment may contain a condition which cannot be satisfied by the TOE Closing Date causing Purchaser to be in default under the contract and to forfeit the downpayment as liquidated damages, or Seller's title report may disclose a violation which cannot be removed by the TOE Closing Date causing Seller to be in default under the contract and to be subject to a claim for damages and/or specific performance.
Rather than establish a TOE Closing Date in the contract, it can be established once the Contract Closing Date has arrived. At that time, if the other party does not seem particularly inclined to close, a party can establish, upon written notice to the other party, a TOE Closing Date so that the party can take into consideration the circumstances of the other party to establish the length of the adjournment.
We advise our clients that the Contract Closing Date should not be relied upon and that it is simply an estimate by the parties when they anticipate that the transaction might close. It is subject to the schedules of the parties and their counsel. It is also subject to bank delays, title problems and many other factors. When the contract is signed with an agreed upon Contract Closing Date, there are many reasons which may delay the closing so don't pack your bags just yet.