Q: We signed a contract to sell our house in early July, with settlement scheduled to take place on Friday, August 9th. In anticipation of settlement, we arranged to move all of our belongings to our new house, which we were going to purchase the following Monday. However, on the morning of the settlement date, our real estate broker advised us that settlement would not take place for at least two more weeks. We are furious. Not only is this a massive inconvenience for us, but we are losing money – and the seller of our new house is threatening to cancel that sale, or at least charge us a significant penalty on a daily basis until we settle.

What rights do we have?

A: Any time there is a dispute involving real estate transactions, the very first thing you have to do is to carefully review the sales contract. Look to see whether there is specific language that states "Time is of the essence".

What does the sales contract state regarding when settlement will take place? Does it give a specific date? Are there any exceptions spelled out in the contract which would excuse the buyer from settling on the date spelled out in your contract?

The standard form contract used in the Washington Metropolitan Area – called the Regional Sales Contract – contains the following language in Paragraph 18:

SETTLEMENT. The Seller and the Purchaser will make full settlement in accordance with the terms of this Contract ("Settlement") on, or with mutual consent, before, _______________ ("Settlement Date") except as otherwise provided in the Contract.

Read every line in your contract – including any addenda – carefully. If you do not understand the document, ask your real estate broker and your lawyer to give you some guidance. Is there any language in the contract which would excuse the Buyer from settling on August 9? Some contracts contain language to the effect that "Settlement will take place on (a date certain) unless the loan is delayed or the title has not yet been searched. Assuming that the buyer diligently pursued obtaining his loan – and promptly arranged for settlement – this clearly would give your buyer the right to delay settlement if these are the reasons for the delay.

The Courts have taken the position that when there is a specific date for settlement spelled out in the sales contract, and there are no other exceptions or conditions which would modify or negate that time, the parties to the contract are bound by those terms. If settlement must take place on the date specified, the party who did not attend the settlement is in breach of the contract.

What does this mean practically? You can insist that if your buyer wants to go through with the transaction, he must reimburse you for all of your reasonable out-of-pocket expenses, such as the extra mortgage, real estate tax and insurance costs you will incur because of the delay. Additionally, if your seller imposes extra costs on you because you did not close in a timely manner, these costs could also be assessed against your buyer.

You obviously do not want to impose such a heavy burden on your buyer that he will not be able to close on your home. Thus, you should try to discuss this directly with your buyer, and try to reach an acceptable compromise solution. It always makes sense to resolve matters amicably, rather than to spend a lot of time and money in the Court house.

It should be noted that there have been Court cases throughout this country which have held that the mere fact that a contract states that "time is of the essence" does not necessarily mean that this clause will be enforced. The Courts will often look to all of the facts and circumstances involving the contract. Has the seller waived – directly or indirectly – the specific time requirements? Is the seller really damaged as a result of the breach? Is the potential penalty against the buyer so excessive that the Court will attempt to frame a more realistic result? Has the Seller made any efforts to mitigate his damages – ie. negotiated a compromise agreement with its Seller?

But what if there is no "time of the essence" clause in the sales contract? In 1980, the District of Columbia decided a case involving the singer Roberta Flack. The Court held that "where no time is specified for the performance of an act, the law implies that it must be done within a reasonable time". (Flack v. Laster).

What is reasonable? Once again, this depends on all of facts of the particular situation. Why is your buyer not able to go to settlement on time? Did he promptly arrange for a loan, but the lender was unable to enter your house to obtain an appraisal because you were not available? Is a two week delay in a hot real estate market reasonable? Ultimately, a judge and a jury will have to make that decision, and clearly you do not want to go to Court for this decision.

One important lesson to be learned: make sure that you include language in any sales contract that "time is of the essence". Alternatively, you should immediately send a letter to your buyer, to the title attorney, and to all real estate agents involved, stating that you are now declaring time to be of the essence and that if your buyer does not go to settlement within 10 days from the date of your letter, you will declare your buyer in default and assert all of the default remedies spelled out in the Sales contract.

What are these remedies? Oversimplified, unless there are changes made in the standard sales contract, a seller has three options:

• declare the deposit forfeited in favor of the seller;
• sue the buyer for damages. If, for example, you put the house back on the market and can only get another contract which is $25,000 less than the first contract price, this is the measure of your damages; or
• sue the buyer for specific performance. This means that you ask the Court to direct the buyer to go to closing and buy your house.

Lawyers like the last two options. But you want to move on with the rest of your life, somehow an amicable resolution must be reached. I have often defined a good settlement as one where both sides walk away unhappy, but walk away.