The phrase ‘time is of the essence’ is often heard in everyday life, to give a sense of urgency and prioritisation. But what does it mean for legal contracts? In simple terms, time is of the essence is a commercial contractual term that allows for termination of a contract if either side fails to fulfil the necessary obligation before the given contractual deadline.
In this blog we will set out what is meant by ‘time is of the essence’ in a business-to-business contract, when it should be included, and when it could be implied into a contract where it is not specifically stated in the terms.
What is ‘time is of the essence’?
In a contract, the parties can agree on a contractual term that states ’time is of the essence’. This means that deadlines will become core conditions of the contract, rather than a more general type of term. A ’time of the essence’ term is typically agreed on by contracting parties when commercial deadlines are crucial.
In practical terms, this means that where a ’time is of the essence’ is part of a contract, even a minor delay can justify termination. This can be expressly provided for within the contract. If the contract is silent on the point, the courts typically treat it as a breach of a contractual condition that would justify early termination.
Legal background:
In the UK, timing and default clauses are primarily governed by the principles of contract law, which have been developed by the outcomes of numerous cases. For example:
The case of Union Eagle Ltd v Golden Achievement Ltd [1997] A.C. 514 is a landmark contract law case, defining the generally accepted outcome of failure to comply with ‘time is of the essence’ clauses. Union Eagle entered a contract with Golden Achievement that stated that time was of the essence for specified dates and times. The contract also provided that failure from Union Eagle to comply with any terms and conditions would lead to forfeiture of the deposit and entitle Golden Achievement to rescind the agreement. Union Eagle tendered the purchase price 10 minutes after the deadline had passed. Golden Achievement therefore declared that the deposit had been forfeited and the contract had been terminated. This case established that because they had agreed on the deadline and that time was on the essence, the delay amounted to breach and it was Golden Achievements right to terminate the contract as the deadline had passed, even though it was only a 10-minute delay as the parties had expressly agreed on the terms of the contract the deadlines and that time was of the essence.
This case highlights that late performance is treated as seriously as not performing at all when ‘time is of the essence’.
When is time considered to be contractually ‘of the essence’?
The exact words do not need to be used for time to be of the essence, however it is recommended as the phrase has an established legal meaning.
Time is also of the essence when:
- The nature of the contract may require that time be of the essence. For examples of this, see below.
- The parties expressly stipulate that timelines and deadlines must be strictly complied with.
- A party who has been subject to unreasonable delays gives the defaulting party notice of the delay that deprives them of the whole benefit of the contract, if agreed in the contract.
Can a ‘Time is of the essence’ clause be implied into a contract?
There is no general presumption that time is of the essence. However, it can sometimes be implied into a contract by the courts depending on the circumstances and the wording of the contract. The courts will determine whether the parties must have intended even a slight default to lead to the loss of the relevant right, or to a right to terminate the contract. Normally, a trivial breach with minor consequences is unlikely to justify termination.
For example, the nature of the contract may imply that time be of the essence where perishable goods are delivered late, or within the sale of volatile assets, such as shares. As mentioned above, the exact wording does not need to be in the contract for time to be of the essence.
Why do contracts include ‘time is of the essence’?
There are a multitude of reasons a contract might include a ‘time is of the essence’ provision. For example:
- Knock on effects: Many businesses rely on their suppliers to adhere to deadlines for scheduling purposes. If the schedule is pushed by one supplier, knock on effects will hinder the running of the business. ‘Time is of the essence’ clauses encourage the punctuality of suppliers.
- The value of a good/service may decrease if there is a delay in performance. For example, perishable goods may decay, or the price of stocks may fall. Time is of the essence clauses mean businesses are not ‘stuck with’ inefficient suppliers if there are delays.
- When drafted correctly, the non-breaching party will have the right to terminate the contract for the benefit of the business without any great deal of uncertainty. This reduces the risk of lengthy legal proceedings needing to take place to allow them to exit the contract. This is extremely beneficial for innocent parties when delay is continuous.
Should all contracts have a ‘time is of the essence’ clause?
Not all contractual deadlines are make-or-break, so it is not necessary to make all contract deadlines ‘of the essence’.
In fact, it may not be beneficial to include a ‘time is of the essence’ clause:
- Contracts with consumer contracts should not normally contain a ‘time is of the essence’ clause in respect of deadlines that consumers must comply with. The Consumer Rights Act 2015 would likely prohibit such a provision because it is “unfair” and likewise it may be unclear to consumers, which can invalid the clause itself.
- Supply gaps may be formed if there are limited available suppliers. Terminated contracts due to minor delays may be a detriment rather than a remedy.
- Minor delays can escalate into major disputes.
- The practicalities of terminating a contract need to be considered
Commercial contract clauses interacting with ‘of the essence’ conditions:
There are a few common contractual clauses that may affect the enforceability of a ‘time is of the essence’ provision:
- Force Majeure– If delays are caused by something outside of anyone’s control, a force majeure clause may excuse the delay.
- Extension of time provisions– allow adjustments of deadlines (unilaterally or by agreement), which can weaken ‘time is of the essence’ stipulation.
- Liquidated damages– pre-determined damage clauses for payment of late performance.
Conclusion and how EM Law can help:
Using a ’time is of the essence’ provision in a commercial contract can be very useful (or hazardous) when deadlines are tight.
However, it is tricky to know when you have been bound to a contractual ‘time is of the essence’ clause when it has not been expressly stated. The consequences of defaulting on a ‘time is of the essence’ obligation can also be hard to navigate dependent on other contractual clauses and terms.
If you would like support with enforcing or reviewing ‘time is of the essence’ clauses or have any questions about the above, please get in touch with us here, or contact Neil Williamson and Colin Lambertus directly.
