What is meant by the phrase “time is of the essence” in a contract?

The phrase "time is of the essence" in a contract emphasizes the importance of timely performance of contractual obligations. It indicates that deadlines established in the contract are critical and must be adhered to. When this language is included, it signifies that any delays could be considered a breach of contract.

When parties proceed in good faith and avoid delays, they are acknowledging the necessity of completing their obligations within the specified timelines, as stipulated in the agreement. This promotes efficiency and accountability among the parties involved, creating a sense of urgency so that commitments are met in a timely manner. Thus, the correct interpretation reflects the expectation that the parties will act to fulfill their contractual duties without unnecessary hold-ups.