Although a standard clause in Agreements of Purchase and Sale, and found in various other forms of contract, what exactly does the phrase "time of the essence" mean to non-lawyers?
A “time of the essence” provision means that on the closing date, where one party fails to meet a deadline for closing (and these can be as exact as a specific hour and minute on a specific date), the contract is not necessarily at an end, instead the innocent party may:
A party must act in good faith in the performance of its obligations under the contract, or it will not be able to rely on the “time of the essence” provision to terminate the contract.
To take advantage of a time of the essence provision the innocent party must itself be "ready, desirous, prompt and eager" to carry out the agreement, also referred to as “ready, willing and able to close”. If a party is not ready, willing and able to close they cannot rely on the time of the essence provision. In a real estate transaction, the proper way to show that the party is ready, willing and able to close, is called to “tender”; a topic of a whole other article.
If there is no innocent party, because both are somehow in breach of the Agreement, or neither party is ready to close, then either party may reinstate time of the essence by setting a new date for closing and providing reasonable notice to the other party.
In deciding whether the new date for closing is reasonable courts will consider all the circumstances, including prior history and conduct, what remains to be done to conclude the contract, the need for performance, and whether time was previously of the essence.
Keep in mind though that a party who is not ready to close on the agreed date and who subsequently terminates the transaction without having set a new closing date and without having reinstated time of the essence will itself be in breach or repudiate of the agreement.
Parties to the contract can, by their conduct, waive the time of the essence clause. Where one party waives the time is of essence, it is not a breach of contract to not have performed the contract by the original time. For example, parties to an agreement of purchase and sale of land who extend the closing several times, but do not expressly refer to time being of the essence, waive this requirement by their extensions: Hutts v. Hancock, 1954 CanLII 111 (ON CA).