One of the most important terms of a real estate contract is the “closing date.” This is the date that the purchaser remits the balance of funds due and the seller delivers the deed and gives possession of the property to the purchaser.
Since lawyers rarely, if ever, will agree to a “Time is of the Essence” contract, either party is entitled to a “reasonable adjournment” of thirty (30) days from the date of the closing date. All too often, however, closings are delayed and adjourned well beyond that, sometimes with impunity.
These delays create an inconvenience for purchasers who may have already vacated their current residence in anticipation of closing on or around the date provided in the contract, and must find alternative living quarters and, perhaps, incur storage costs for their furniture and personal property. It can also burden sellers, who may have already vacated the property being sold, with carrying the cost of maintaining both their former and current residence and paying both mortgages.
Once thirty (30) days from the closing date have elapsed, the seller may declare a “Law Date” and give the purchaser “reasonable notice” that on a specified date and time at a specified place (usually his/her lawyer’s office) the deed will be executed and ready for delivery.
Should the purchaser fail to appear on the “Law Date” at the scheduled time and place, the contract will be cancelled, the contract deposit forfeited and the litigation will begin!
Should the seller be the one causing delay, the purchaser may commence an action for specific performance where he/she seeks a court order directing the seller to close, and the litigation has begun!
Either way, litigation is usually far too expensive for most parties to a residential real estate contract, so as a practical matter, where one party delays, the other party …. waits … and waits… and waits.
An alternative to the dreaded “Time is of the Essence” clause is to include a “Penalty Clause” in the contract which states that if the closing is delayed beyond a certain date, the party causing the delay will incur a specified penalty for each day delayed. While enforcement of such a penalty clause will be difficult, the cost of litigation generally precludes it as a practical matter, its mere existence will act as a deterrent and cause both parties to close before incurring the penalty.
As with any other term in the contract, a penalty clause must be agreed to by both sides. As it is not “standard,” you may encounter some resistance to your request to insert such a clause into the contract and will have to decide whether to insist upon it and risk the transaction or withdraw your request and risk a delay.
To avoid any “unintentional delays,” it’s important for the real estate attorneys to do their homework and make sure that all issues have been addressed and resolved prior to the closing, but even with the parties’ best intentions, and thorough competent real estate attorneys, one must always be prepared for delays regardless of the anticipated closing date.