"On or Before" Closings, Is There a Benefit?

 

It’s a popular phrase, but one common misconception regarding the use of the words "on or before" is that these words alone somehow provide either party to the transaction the unilateral ability to change the closing date to any date that he/she wants.  However, the addition of the phrase "on or before" only allows a change to the provided date by agreement of both parties to the contract.  If either party does not agree to the earlier closing date, then the earlier closing does not occur.  You might wonder, so what is the practical difference when using a closing date without the phrase "on or before"?  Nothing really, because if a closing date is provided without that phrase, and the parties then want to change the closing date, they again must separately agree to the change in the closing date.  

So what, if any, benefit is there to using the words "on or before"?  In my opinion, the benefits are twofold: (1) shows flexibility in the intent of the parties to perhaps close sooner, so all parties are on notice of this possibility and can prepare accordingly (albeit they must still agree to close earlier as stated above); and (2) use of the phrase may avoid the "time is of the essence” clause that exists in all the Florida contract forms, at least as it applies to the closing date.  

Much litigation exists over "time is of the essence" clauses, and in most cases, courts strictly enforce such provisions.  The use of this language essentially means that deadlines in the contract are firm deadlines, with penalties to a non-performing party for failing to meet the deadline, including a closing date.  For a buyer, this could mean a lawsuit for specific performance, or at a minimum, loss of the earnest money deposit funds.  The Florida form contracts state that typewritten or handwritten provisions shall control over the pre-printed provisions of the contracts.  Therefore, if the phrase "on or before" is typed or handwritten into the contract before a specified closing date, this may trump the "time is of the essence" clause as applied to the closing date.    

However, from a buyer's perspective, especially in financed transactions, the likely scenario is not that a transaction closes before the chosen closing date, but after.  Delays often occur in financed deals for one reason or another (e.g. underwriting delays, appraisal or inspection issues, etc.) and an agreement must be reached between the seller and buyer for an extension to the closing date, or the buyer could again be facing a specific performance lawsuit or loss of deposit.  Thus, when drafting the language for the closing date in an offer, if acceptable to the seller, one should consider using the language "on or about" as opposed to "on or before."  Logically, this language provides even more flexibility than its counterpart does, and would likely result in a reasonable extension to the closing date without enforcement of the "time is of the essence" clause and outright refusal by the seller to the proposed extension.

As always, before customizing any language or altering any terms of the form contracts, consulting with a Florida licensed real estate attorney is recommended.

 

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