Condition Precedent
An event or circumstance that must occur before a party's contractual obligation becomes due or before a contract takes legal effect.
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Condition Precedent?
A condition precedent is an event or state of affairs that must occur (or must be satisfied) before a party's contractual duty to perform arises. Until the condition is met, the obligation is "suspended" - neither party is in breach for failing to perform. If the condition never occurs, the obligation never arises, and the contract (or that obligation) is discharged without breach.
It is critical to distinguish a condition from a promise. A promise is an absolute commitment to do something - breach of a promise gives the other party a damages claim. A condition is an event outside the party's control (or subject to good faith efforts) - if it does not occur, the obligated party is discharged without liability. Courts resolve ambiguity in favor of finding a promise (which gives a remedy) rather than a pure condition (which may leave the other party without recourse).
Conditions precedent are ubiquitous in M&A transactions: HSR regulatory clearance, board approval, financing condition, satisfactory due diligence, and material adverse change clauses. In real estate contracts, common conditions include financing contingency (buyer obtains mortgage approval) and inspection contingency (satisfactory inspection results). Failure to satisfy these conditions typically allows the buyer to walk away without forfeiting their deposit.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Express vs. Implied Conditions
Express conditions are explicitly stated in the contract. Implied conditions arise from the nature of the transaction - courts sometimes imply conditions where fairness requires.Satisfaction of Condition
The condition is satisfied when the specified event occurs or the specified state of affairs exists. The standard may be "objective" (reasonable satisfaction) or "subjective" (personal satisfaction).Duty of Good Faith
Where a party has control over whether a condition occurs, courts impose a duty of good faith - a party cannot prevent a condition from occurring in order to escape their obligation.Waiver of Condition
A party for whose benefit a condition exists can waive it - agreeing to proceed even if the condition has not been (or cannot be) satisfied.Real-World Example
A buyer contracts to purchase a company for $10 million, with the closing conditioned on the buyer obtaining financing of at least $7 million within 60 days. The buyer makes genuine efforts but cannot secure financing. The condition is not met.
The financing condition precedent was not satisfied. The buyer is entitled to walk away from the deal without liability for breach of contract - the condition was not a promise that financing would be obtained, just a condition that made the obligation contingent. The seller cannot sue for damages for the buyer's failure to close, provided the buyer genuinely tried to satisfy the condition.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Condition Precedent to ClosingWatch Out For
Distinguish Condition from Promise
If a term is ambiguous between a condition and a promise, courts prefer to treat it as a promise (giving a remedy for breach) rather than a condition (leaving the other party without recourse). Draft clearly to avoid this ambiguity.Good Faith Duty Applies to Conditions Within Your Control
If you control whether a condition is satisfied (e.g., obtaining internal board approval), you must use good faith efforts. You cannot deliberately prevent satisfaction of a condition you control to escape your obligation.Waiver Must Be in Writing
Be careful about informally proceeding as if a condition has been waived. Ideally, confirm waivers of conditions precedent in writing to avoid later disputes about whether the condition was satisfied.Don't let condition precedent deadlines catch you off guard
Key dates tied to condition precedents - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
List All Conditions Clearly and Exclusively
In M&A and real estate contracts, enumerate all conditions precedent in a single, exclusive list. Courts may find implied conditions if the list is ambiguous - make it comprehensive.Specify a Longstop Date
Include a "longstop date" - a deadline by which all conditions must be satisfied. If conditions are not met by the longstop date, either party may terminate without liability, providing certainty.Frequently Asked Questions
What is the difference between a condition precedent and a condition subsequent?
A condition precedent must occur before an obligation arises. A condition subsequent, if it occurs, terminates an obligation that already exists. A condition subsequent is less common - most contract conditions are conditions precedent.
Can I waive a condition precedent?
Yes - if the condition was placed in the contract solely for your benefit (e.g., a financing contingency for the buyer), you can waive it and proceed to close without satisfying the condition.
Does failure of a condition precedent give me a damages claim?
Generally no - if a condition precedent fails (through no fault of either party), neither side is in breach and neither has a damages claim. The contract simply does not become effective or the obligation does not arise.