Can the “Delay in Settlement/Closing” paragraph be struck from the contract?
QUESTION: I was going over an offer with a seller whose property I have listed. He’s okay with the financial terms but he does not like the wording in the Offer to Purchase and Contract (form 2-T) that allows a delay in Settlement/Closing of up to seven days. He doesn’t see why the parties shouldn’t have to close on the agreed-upon Settlement Date and he has asked me to strike the entire paragraph. Can I do that?
ANSWER: We do not think you should strike the “Delay in Settlement/Closing” paragraph.
The one-week delay mechanism has proven to be a very positive change to the Contract in our view. It represents a compromise between requiring strict adherence to the settlement date by making time “of the essence,” and not saying anything at all about the effect of a delay in settlement. Making time of the essence has not been favored in residential real estate transactions in North Carolina, as unforeseen circumstances completely beyond a party’s control resulting in even a minor delay in closing might well relieve the other party from any obligation to complete the transaction. On the other hand, if the effect of a delay in closing is not addressed (which was the case in older versions of the Contract), North Carolina common law allows a delaying party acting in good faith a “reasonable time” within which to close. What constitutes a reasonable time is completely undefined and depends entirely on the circumstances. In the leading case on the subject, the North Carolina Supreme Court concluded that the delaying party’s tender of performance one year after the closing date was reasonable under the particular facts of the case.
Of course, if your seller wants to suggest that time be made “of the essence” with regard to Settlement/Closing and the buyer agrees, that’s their prerogative. However, in our view, striking the Delay in Settlement/Closing paragraph very well might not accomplish the intended result. In fact, striking that paragraph without more could conceivably give a delaying party more than one week to complete closing following the settlement date if a court concluded that such a delay was reasonable under the particular circumstances. To make time properly “of the essence” regarding the Settlement Date, the Contract should be amended to specifically say just that. Any such amendment should be handled by a North Carolina real estate lawyer, not a real estate agent. It’s not just a question of proper drafting; it’s also important for your client to first understand the potential legal consequences of such a change. Be sure to have your recommendation that he seek legal advice it in writing, such as a follow-up email confirming your conversation with him on the subject.
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