Time of the Essence Letter Enforces Sale of an $8,000,000 Residential Property in Less Than 24 Hours
We recently represented an architect who had purchased a 170 year old townhouse in the West Village and converted it from a 7 unit rental building into a custom mansion. We had entered into contract over the summer with a closing date of “on or about September 1, 2010.” New York State case law provides that both purchasers and sellers are entitled to a “reasonable adjournment” of the “on or about” closing date in the contract. The precedent set by case law is that a “reasonable adjournment” is approximately 30 calendar days. We had scheduled the closing for October 4, 2010 and the purchaser had refused to show up to the closing and gave us notification of this less than an hour before the closing. The purchaser had attempted to arbitrarily negotiate a concession at the last minute.
We had advised our client not to consent to this and gave the purchaser 24 hours to confirm a firm closing date for the same week and to wire the balance of the purchase price (minus the 10% contract deposit) into our attorney escrow account. When the purchaser failed to do this and demonstrated the potential to drag this matter indefinitely, we sent them a time is of the essence closing letter which states that if they fail to close on the date specified in our letter, they will be in default of the contract and risk losing their entire 10% deposit (approximately $800,000) which would be considered liquidated damages.
There are three main elements that courts look for in the validity of a time is of the essence letter, namely: 1) notice must be clear, distinct and unequivocal; 2) it must inform the other party that if they do not perform by that date, they will be considered to be in default; and 3) it must fix a reasonable time within which to perform. The time is of the essence letter had these three elements incorporated and set the closing date for 10 days from the date of our letter (10 days under our circumstances is considered reasonable notice). We had sent this letter at 7pm on October 5, 2010 and were able to use it as a negotiating tactic to get the buyer to the closing table less than 24 hours later. We ended up successfully closing on the evening of October 6, 2010.