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Last edited 06 Jun 2017
Time of the essence in construction contracts
The term ‘Time is of the essence’ refers to a contractual position in which, if one of the parties to the contract fails to complete their obligations by a specified date, then the other party can treat the contract as terminated. This might be appropriate for example in the supply of perishable goods where late delivery would go to the ‘root’ of the contract, depriving the innocent party of the whole benefit of the contract. They may then terminate the contract and claim damages.
Time can be of the essence if the contract says it is, or where it can be implied from the contract. Setting a completion date is not sufficient to make time of the essence. However, where one party has caused delay, the other party can give notice requiring completion by a certain date, thereby making time of the essence.
Typically on construction contracts, time is not of the essence, but rather a completion date is set (the date by which practical completion must be certified). There are generally mechanisms allowing the completion date to be adjusted, and liquidated damages can be claimed by the client if delays that are the fault of the contractor result in a failure to complete the works by the completion date. However, the contract is not terminated, and to do so would generally not be in the interests of either party.
If ‘time is at large’, ie there is no date for completion, or the date for completion has become invalid (with no mechanism for extension), then the contractor is no longer bound by the obligation to complete the works by a certain date. The client would then not be able to claim liquidated damages from the contractor and the contractor would only have to complete the works in a 'reasonable' time. The client would then only be entitled to damages if they could established that the contract was not completed within a reasonable time.
Whilst time is generally not of the essence in construction contracts, they do tend to include a requirement that the contractor proceeds ‘regularly and diligently’ irrespective of whether it is apparent that the completion date will be achieved.
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