Time is of the essence

Time is of the essence is a magic incantation that one puts into a contract to designate that, whatever else might go down, a party’s failure to comply with obligations within the stated time-frame is a fundamental breach justifying termination of contract, a plague upon your houses, apocalyptic horsemen on the ridge and so on.

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Now at common law, time is — was — always of the essence. When any time is specified for the completion of an action, one party has an action if the other doesn’t performed by that time.

But as always, the dear old courts of chancery have to have their say. In equity, time is only fundamental to a contract if:

• it is expressed to be “of the essence”; or
• Otherwise, the circumstances indicate the time limit must be complied with exactly;
• Where neither of the above applies, but one party has been unduly delaysome, the other can give notice requiring performance within a reasonable time, therefore making time of the essence.

Thanks to the Law of Property Act 1925, Section 41, the rules at equity now apply in contract as well. Eheu.

Grace periods and “the essence”

We have heard it argued that time being of the essence might override otherwise carefully negotiated grace periods. When challenged, the counsel in question was tongue-tied for a moment, before mumbling something about litigation over the Lehman administration but could not, ultimately supply any grounds, let alone actual authority, for this proposition. Time being of the essence means, more than anywhere, that one should assume the parties meant what precisely what they said. Here, one should pay exact attention to the time limits prescribed by a contract — including the grace periods so tediously injected into it — not ignore them.

Time being not of the essence and rent review

We rarely foray into commercial leases, folks, but you may see written the rent review section of a commercial lease that “time is not of the essence”.

What? Not of the essence?

As these contracts are inevitably written to protect the landlord, you may puzzle at this. Is this just unusual generosity by the landed gentry?

Quite the contrary. This is to give the landlord the excuse to retrospectively increase rent if it neglects to at the earliest opportunity. It permits the landlord to backdate the increase, on the argument that, “well, time wasn’t of the essence, so I didn’t bother to set the new rent at the time, and am doing it now.” Commercial tenants are warned to be proactive about re-setting rentals, therefore, to deprive the landlord of such optionality.

This may strike you as crappy behaviour — it did me, at first blush: if you don’t reset the rent at the time — or at least try to — then the rent delta for that missing period it ought to be your loss, and indeed would be on ordinary principles of waiver. Your increase would take effect prospectively.

But the rent review process in a commercial lease is negotiated between arms’ length parties who are not regarded, as are domestic tenants, as needing the protection of fair treatment. And it is meant to be an agreed, or failing agreement, independently determined market rent. This is not a free option for landlords, but a “marking to market”.

See also

• Law of Property Act 1925
• Fundamental breach (aka repudiatory breach) or contract