Lee Harris is one of Louisville’s best known and most prominent real estate attorneys who has served with the Kentucky Real Estate Commission for 12 years and worked at the office of Limestone Title for six years now. She joins the podcast to help explain that strange language in many real estate contracts that states “Time is of the essence.”
According to Harris, there was a 1956 Kentucky court case (Benet vs. Stevens), which stated that time is not of the essence in real estate contracts. So, unless explicitly stated, there is no particular drop-dead deadline for the deal. Sometimes a real estate contract will read that a buyer has 10 days to get an inspection, where “time is of the essence” – and that means that the buyer doesn’t have the luxury of getting an inspection once day #11 rolls around.
Real estate contracts are piece by piece, so putting “time is of the essence” in one section doesn’t necessarily kill the whole contract, Harris adds, unless there is a clause that states: “Times of the essence for every provision in this contract.” There are contracts out there in the state of Kentucky that say that, but Harris doesn’t generally recommend it.
The Board Forms Committee members who drafted the contracts debated for a while, but ultimately decided that the inspection clause in Louisville was killing a lot of deals, Harris says. They found that there was a lot of negotiation back and forth during the time specified on the contract, but if there was any disagreement on the repairs, the deal would fall through. Meanwhile, the home was off the market for (in some cases) up to 90 days, so the seller had trouble finding another buyer in that situation.
It’s usually preferable to leave a bit of wiggle room within a contract, which is why making “time of the essence” is not advisable for the entire contract. For instance, you may not want to put the closing date in stone. If there is a tornado or a flood on that day, you may run into trouble making good on that promise. There is a whole litany of individuals needed to bring a particular real estate deal together — inspectors, lenders and underwriters. All the cogs need to be well greased and moving in sync. Then there are personal issues for the buyers and sellers to consider. What if there is a death in the family, for instance? Do you add a lost deal to the commotion?
In her line of work, Harris stresses that it’s important for people to understand that the closing date is – in most cases – a goal, rather than an absolute deadline set in stone. Years down the road, they’re not going to care if the closing got pushed back a couple of days, but in the moment it can be upsetting to wait. So if there is a circumstance where the buyer or the seller absolutely needs the deal to go through on a particular date, then the clause needs to be included.
“Human nature has always been that a person wants to do that,” Harris says, “but it really depends upon three things: the market, the property, and the personal circumstances.”