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.