Is time of the essence in building contracts?
Time is ‘of the essence’ when any breach of stipulations about time in a contract can be treated as repudiatory so as to entitle the other party to terminate performance of its obligations and claim dam-ages.
There are probably only three instances where time will be of the essence:
- if it specifically states in the contract that time is of the essence;
- if time being of the essence is a necessary implication;
- if one party is in delay to an unreasonable extent, time may be made of the essence if the other party serves a notice on the party in breach setting a new and reasonable date for completion.
The term must be so fundamental that a failure to comply would make the contract almost worthless so far as the other party was concerned. An example might be if a shop orders goods for sale to meet a particular demand and that demand is known to the supplier, failure to meet the required delivery date might, depending on all the circumstances, amount to a breach of an essential term.
Time will not normally be of the essence in building contracts unless expressly stated to be so. The reason is that the contract makes express provision for the situation if the contract period is exceeded in the form of an extension of time clause and liquidated damages. Therefore, it would be a nonsense to make time of the essence: one term would be to the effect that failure to complete by the due date would entitle the other party to accept the failure as repudiation, while the other term would allow the contractor to an extension of time for appropriate reasons. Time was made of the essence in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd and apparently gave the employer the right to terminate the contract at the end of the period as extended by the architect. In the case of most building contracts, the provisions for termination (e.g. for failure to proceed regularly and diligently) adequately cover the situation.