National Real Estate Exam (PSI)ContractsHard
A purchase agreement contains a clause stating "time is of the essence," specifying a closing date of June 1. The buyer fails to close by June 1 without a valid excuse. What is the legal effect?
- AThe buyer automatically forfeits only the earnest money with no further liability
- BThe closing date becomes merely advisory and may be extended without consequence
- CThe clause is unenforceable in real estate contracts
- DFailure to close by the stated date constitutes a material breach, entitling the seller to remedies
Show answer & explanationAnswer & explanation
Correct answer: D. Failure to close by the stated date constitutes a material breach, entitling the seller to remedies
A "time is of the essence" clause makes strict compliance with stated deadlines a material term of the contract. Missing the deadline without excuse constitutes a material breach, allowing the non-breaching party to pursue remedies such as damages, specific performance, or termination.
Why the other options are wrong
- A. Forfeiture of earnest money may be one remedy, but the clause can also support additional remedies like breach damages.
- B. Without the clause, dates might be more flexible, but with it, deadlines are strictly enforced.
- C. Time-is-of-the-essence clauses are valid and commonly enforced in real estate contracts.
Time Is of the Essence Clause
A contract clause making strict adherence to specified deadlines a material and enforceable term, where failure to meet them constitutes breach.
- Elevates deadlines from flexible to legally critical
- Missing a deadline can be treated as material breach
- Without this clause, courts may allow reasonable delay
Memory trick: Essence means deadlines have teeth — miss it, breach it.