Closing dates in contracts are an essential component of New York residential real estate transactions for both purchasers and sellers. Unfortunately, scheduling a closing does not always go as smoothly as anticipated. That is because most residential contracts do not list an absolute set closing date or “time of the essence” (TOE) date by which the parties are required to close. Typically, residential contracts list an “on or about” closing date, which is merely an approximate target date. Under such an “on or about” closing date provision, either party has the right to a reasonable adjournment of the closing date, which is widely held to be 30 days from the “on or about” closing date listed in the contract.
If a contract does specifically list a TOE closing date, the parties are required to perform their obligations under the contract and close by the stated TOE date. In order to be effective, a contract must unequivocally state that the closing is “time of the essence”. This creates what is sometimes referred to as the “law date” for closing. Simply listing a closing date as “on or before” or “no later than” a certain set date has been held not to have the same meaning as “time of the essence”. TOE provisions in contracts can be mutual, or unilateral, obligations on either the buyer or the seller, so long as explicitly stated.
When a contract does not expressly list a TOE closing date, either party may unilaterally make it a TOE closing by giving a clear and unequivocal written notice to the opposing party. This notice must be sent after the “on or about” closing date listed in the contract. The TOE letter must establish the final date upon which the parties to the contract must perform their obligations or else risk being held in default under the contract. Relevant case law has held that so long as a TOE notice provides the opposing party with at least 30 days’ prior written notice of the TOE closing date, it will be deemed sufficient notice. A party that provides less than 30 days’ written notice of a TOE closing date runs the risk that a Court may determine that the party did not provide the opposing party with sufficient notice as a matter of law.
The party providing notice of a TOE closing must be ready, willing and able to close and perform its obligations under the contract on the designated TOE closing date. Thus, a TOE letter should contain clear language setting forth a specific TOE closing date, as well as language stating that in the event the opposing party does not perform its contractual obligations by that TOE date, they will be considered to be in default under the terms of the contract.
In order to ensure that a Court can objectively determine that a party was in fact ready, willing and able to close on the TOE closing date, it is recommended that the party setting the TOE closing have a Court reporter or videographer attend the closing on the TOE closing date. The attorney for the party that set the TOE closing should actually conduct a run-through of the closing, even if the opposing party does not attend, in order to demonstrate that his client is in fact ready to close at that time. Though not strictly required, involving a Court reporter or videographer is a prudent approach that would likely provide beneficial evidence in motion papers.
When a seller sets a TOE closing date, the seller’s attorney should send correspondence to the purchaser’s attorney outlining the closing preparation and requirements, including but not limited to drafts of closing documents, proposed closing figures and adjustments, and payment instructions for the balance of the purchase price. This helps establish the seller’s readiness to close.
If a TOE closing does not, in fact, take place on or before the TOE closing date set forth in the TOE letter, the non-defaulting party may seek the default remedies provided under the contract. In the event of a seller default, the purchaser may be entitled to cancel the contract and be reimbursed the initial downpayment. Alternatively, a purchaser could force the sale of the premises by the seller by means of specific performance. Should the purchaser default, the seller might be entitled to cancel the contract and retain the initial downpayment as liquidated damages.
All of these factors make it imperative that before entering into a residential contract, the parties understand that an “on or about” closing date is not set in stone and very rarely provides the finite closing timeframes typically expected. Although it is often difficult to avoid delays in closing, understanding the relevant closing timeframes in the contract, and the potential remedy mechanisms should things go wrong, will likely help ensure a smoother closing process.
Written By: Michael J. Shampan, Partner, in the Firm’s Transactional Department.