Simplifying contracts is not just a matter of taking each clause and making it plainer language. We really need to understand the precise jargon used and whether it is even appropriate for this type of contract.
Time is an essential condition
Back in 2015, when I started to revise the FMB suite of contracts, scattered among the plain language was legal jargon: counterparts, set-off, abatement, good faith, warrant etc. Worse still, their small works quotation stated time is not of the essence without any explanation!
‘Time of the essence’ means that performance of a specific contractual obligation by a specific time is critical and any delay will entitle the buyer to end (terminate) the contract.
A contractual obligation will only be considered subject to this restriction if one of these applies:
- The contract sets out a specific time period to be strictly complied with, or
- The project is one where time should be considered critical, or
- The party in unreasonable delay is given notice that time is now critical.
When debunking contract jargon in my masterclasses, I tend to use the example of a ship of fresh oranges. If that order arrives late, the oranges may be mouldy or even liquid and the buyer should be able to refuse to pay for them.
But construction projects are not oranges! If the works are completed late, then money (delay or liquidated damages) is often sufficient to act as compensation.
Although it is rare for a standard form construction contract to include this phrase, it can still be spotted ‘in the wild’. For example, a construction contract for a new apartment, stated that in relation to the time limits specified in this agreement, time shall be deemed to be of the essence.
The Court of Appeal held that – despite what the words said – the time for completion of the project was not ‘of the essence’ and that the client did not have a right to terminate for delays. Most construction contracts include suitable remedies instead of termination such as extensions of time and liquidated damages.
This jargon is not appropriate for many contracts where the time for performance is not critical… even for the thorny issue of getting paid. Local law may provide alternative remedies for late payment such as interest on overdue sums, suspension or compensation instead of the ‘nuclear option’.
What should you do?
Never be tempted to adopt or copy jargon from another contract simply because it sounds good. Don’t be caught out not knowing what your contract terms mean… judges do not look kindly upon purveyors of nonsense!