Closing Dates: Tentative or Firm?

SUMMARY

Unless the closing date in the contract of sale clearly states “time is of the essence” or “firm,” the date set for closing is tentative and is subject to the parties agreeing on a firm date after all pre-closing conditions are satisfied.

OVERVIEW

As real estate attorneys, The Donaldson Law Firm is responsible for preparing and negotiating contracts of sale for our clients who are buying or selling property. Once we reach agreement with the other lawyer regarding the final contract language, one of the most common questions that comes up is, “When are we going to close?”

Because a lot has to happen before all of the conditions in a contract of sale are satisfied, e.g., inspections, clear title, mortgage underwriting approval, etc., contracts will typically identify the closing date as, “. . . on or about January 15, 2022.”

The “on or about” language means the closing date is a moving target. In plain English, “on or about” means, “Because the average closing will occur about forty-five to sixty days after the contract of sale is signed, we’ll say the closing is going to happen ‘on or about’ that many days from now, but the chances that we’ll close on that exact date are negligible, at best.”

While rare, some parties may agree to make the closing date firm, meaning the closing date in the contract is not subject to any other conditions. Making a closing date firm is more agreeable when the buyer is paying cash and both parties agree to close several months from when they sign the contract because it leaves everyone enough time to prepare.

But (and this is a big “but,”) in order to make the closing date firm, the contract has to include very specific language, i.e., the closing date must specifically be identified as “firm,” or that “time is of the essence.” Without that very precise language, the closing date will be considered tentative even if the contract doesn’t read, “on or about.”

What happens if the “on or about” closing date passes and the closing still hasn’t been scheduled? One option is to ask your real estate attorney to send a “time is of the essence” letter to make the closing date firm. However, a “time is of the essence” letter should be considered a last resort because, to be effective under New York law, the letter must state that if the other party does not close by a certain date, he/she will be in default. If the other party is the buyer, a default means the possibility of forfeiting the contract deposit. If you were in the buyer’s position, would you be pleased to learn that you may lose tens of thousands of dollars due to circumstances outside of your control?

So when your real estate attorney provides you with the final contract of sale, make sure you ask whether the closing date is tentative or firm. Chances are, the closing date will say, “on or about” which means it’s a tentative date subject to change, so don’t put that date on your calendar just yet.

If you have questions about buying or selling real estate, don’t hesitate to give us a ring or send us an email.