What Is a Time of Essence Letter for a House?

A time of essence clause in real estate refers to the need to close a deal by a specific date. The clause is either inserted into the real estate contract itself or created by the delivery of a letter from one party to the other. A time of essence closing is sometimes necessary if one party has to sell or own the property by a certain deadline.

A time of the essence clause in a real estate contract is a set date, time and possibly location for term fulfillment. For example, a contract might state that the deal must close by or on June 5 by 5 p.m. at the buyer's attorney's office. If the deal doesn't close by that date and time, the party causing the delay is in breach of contract, leaving the door open for the other party to take legal action. However, if the time of essence clause isn't placed into the contract, one party may invoke it by sending the other party a letter.

In most cases, a time of the essence letter is sent after the tentative closing date in the contract has passed and serves as legal notice to the other party. The letter gives the date, time and place the deal must close, and states that the other party will be in breach of contract if he doesn't meet the criteria. The party sending the letter has to give the other party a reasonable amount of time to comply, as determined by state laws and guidelines. For example, 10 days is commonly used for the deadline in time of essence letters. The sending party should give the letter to all involved parties, including the real estate agents and attorneys. The sender doesn't need the other party's signature or consent because it refers back to the original, already signed contract.

Once one party has sent a time of essence letter to everyone involved in the deal, he has to wait until the deadline passes to take action. The receiving party can challenge the letter in court if he doesn't agree to it. The sender can pursue legal avenues to recover money he lost in the deal if the deal still doesn't close. For example, a buyer may sue the seller for breach of contract if the closing still doesn't happen after he sends a letter and the deadline passes. His damages might include any expenses he paid in anticipation of buying the house, such as the inspection fee and attorney costs.

A time of essence letter must clearly spell out all of the legal obligations each party must meet to ensure the deal closes on time. For example, if a buyer sends out a time of essence letter, but the deal can't close because he hasn't scheduled the home inspection, the buyer is preventing the seller from closing. The seller can raise this issue in court if one party sues the other for breach of contract.