Time is important, but essentially how important? Understanding what "time is of the essence" means

By Tim Jones, Nick Josey, Tim George, Georgie Groves and Thomas Ryan
25 Aug 2023
Time to read: 3 minutes

It is important to understand what agreeing that "time is of the essence" under a contract will mean if the transaction does not complete, and what you can do in those circumstances.

If parties agree that "time is of the essence", they have expressly agreed to perform their obligations strictly by the times specified in the contract. These clauses are common in contracts for the sale of land, to ensure that both parties attend at settlement and are ready, willing and able to complete the transaction.

In some parts of Australia, a breach of a clause for which time is of the essence by even a few minutes will be sufficient to allow the non-defaulting party to terminate the contract. However, that position is not uniform:

  • in Queensland, the settlement date is critical – subject to a limited 5 business day extension right in the new standard form REIQ Contracts, if the parties do not settle on that contract settlement date (or the extended date, if applicable), the non-defaulting party can terminate the contract immediately.
  • however, in, for example, New South Wales and South Australia, the non-defaulting party is required to serve a "Notice to Complete", which allows the defaulting party a further fourteen days to complete the contract.

Of course, the relevant contract can also specify what occurs if the time requirements are not met, which may be inconsistent with the general positions set out above. A recent case provides a useful example (Akrawe v Culjak [2023] NSWCA 171).

A sale of land falls through

Mr Akrawe contracted to purchase land from Mrs Culjak, with a settlement date of 22 February 2021. The parties agreed that time was to be of the essence, however, settlement did not occur on that date. Mrs Culjak served a Notice to Complete on Mr Akrawe on 3 March 2021, requiring that settlement occur on 18 March 2021.

After serving the Notice, Mrs Culjak agreed for a new contract between her and Mr Akrawe's son, but only if the relevant documents were received by 5.00pm on 10 March 2021. That deadline was extended by agreement to 12.00pm on 11 March, at which point Mrs Culjak was advised that the new purchaser was waiting on funds to clear that might take "a couple of days". In response, Mrs Culjak's solicitor made it clear that the Notice still stood.

Late in the afternoon on 18 March, Mr Akrawe's solicitor informed Mrs Culjak's conveyancer that Mr Akrawe needed further time to settle. There was a flurry of correspondence, including that Mr Akrawe now wished to proceed with the transaction but needed a further five days.

With no settlement on 18 March, Mrs Culjak served a Notice of Termination of the original contract, and then commenced proceedings:

  • Mrs Culjak sought a declaration that the contract was validly terminated, and that she should retain the deposit;
  • Mr Akrawe in a cross-claim argued that the termination was invalid and sought an order for specific performance of the contract.

The Court of Appeal upheld the finding of the trial judge. The indication on 11 March that the Notice to Complete still stood was a clear indication to Mr Akrawe that he could not safely proceed on any basis other than that a failure to complete by 18 March 2021 would be a breach of the contract in an essential respect that would entitle termination of the contract. It stated that it was "inherently implausible" that Mrs Culjak was:

"… keeping open the possibility that [she] might agree to a course other than [her] present insistence upon completion of the contract in accordance with the Notice to Complete."

The outcome was a simple one: Mr Akrawe had agreed to abide by a timetable, and had failed to do so, so Mrs Culjak exercised her rights accordingly by issuing the Notice and then terminating for failure to comply with the Notice. There was nothing disingenuous or unconscionable arising out of her doing so.

What you can learn from this if time is of the essence

There are several important takeaways:

  • Ensure that you only agree to be bound by timeframes that you and any institution you rely upon to complete the contract (financial institutions, inspectors and the like) can reasonably comply with. If you think you may need more time, ask for it, or don't agree to the clause.
  • Ensure you are abreast of the procedures that affect the "time is of the essence" obligation in the relevant jurisdiction.
  • Ensure that you and any legal team are well aware of what must be done by particular dates – if there is a prospect that you may not meet the deadline, ensure that you put a request for an extension in train early, keeping in mind that any request for an extension must be drafted in a way that does not represent a repudiation of the agreement.
  • Reserve your rights at every opportunity, to ensure that you are not waiving a failure to comply with timeframes in circumstances where time is of the essence. Had Mrs Culjak's solicitor not insisted on compliance with the Notice to Complete on 11 March 2021, it is possible a Court may not have been convinced that she had dismissed any prospect of relying on the existing contract.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.