What's the best way to deal with late contractual performance?

Delays and late performance under a contract can be enormously frustrating. Maybe a payment deadline has been missed or another business you’ve been working with has failed to deliver goods or services. If that’s the case then you might be keen to get out of the contract or be looking for ways to try and get the other party to take action. So, what’s the best method for dealing with late contractual performance?

Is time of the essence in the contract?

If the contract you’ve signed with the other business makes time ‘of the essence’ then that makes the deadline a condition of the contract, as opposed to simply a term. So, if the deadline has been missed – even only by a small period of time – then you may be able to terminate the contract straight away. There are some caveats to this, such as whether your own behaviour made meeting the deadline impossible or whether it’s express or implied that time is of the essence.

Where the contract doesn’t make time of the essence

If you haven’t written this stipulation into the contract then terminating the contract straight away could be considered wrongful, which will potentially attract a claim for damages. However, there is another catch here too – if a deadline has been missed and you don’t terminate the contract soon enough then you could be deemed to have accepted the breach constituted by the missed deadline. So, in many ways, if time is not ‘of the essence’ in a contract this can leave a business between a rock and a hard place.

A notice to make time of the essence

In a situation where there has been late contractual performance and time is not of the essence as a contractual condition a notice can be issued. Serving a notice to make time of the essence won’t actually change the situation – and it won’t add a “time of the essence” condition to the contract as that’s an alteration that would need to be agreed by both parties. However, what it will do is make clear the date on which you consider the late performance to be a serious breach of the contract. The notice could act to help resolve the late performance and identify the issues behind it.

A notice to make time of the essence has two key components: information about what the party in breach of the contract needs to do, including a reasonable deadline for doing it, and a statement that you may terminate the contract if this is not done.

Repudiatory breach of contract

Even where time is not of the essence, if there has been a breach of contract then at some point this will become a repudiatory breach. It’s at this point that a right to terminate the contract arises. There is no set rule for the point at which a repudiatory breach allows a party to terminate the contract so you may need to take legal advice to avoid mistiming this. Once you’ve established the right time, acceptance of the repudiatory breach needs to be communicated to the other party and a statement that the contract is terminated made.

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