Condition Precedent vs Condition Subsequent
The main difference between a condition precedent and a condition subsequent is timing. A condition precedent is an event that must happen before a party's duty to perform begins, such as obtaining financing before closing a purchase. A condition subsequent is an event that, if it happens later, ends or cancels a duty that already exists, such as a contract ending if a required license is revoked.
Condition Precedent vs Condition Subsequent at a glance
| Condition Precedent | Condition Subsequent | |
|---|---|---|
| Timing | Must occur before the obligation starts. | Occurs after the obligation is already in effect. |
| Effect | Triggers or activates a duty to perform. | Ends, suspends or cancels an existing duty. |
| If the event never happens | The duty never arises, and neither side is in breach. | The duty simply continues as normal. |
| Burden of proof | The party seeking performance usually must show the condition occurred. | The party seeking release usually must show the event happened. |
| Typical wording | Subject to, provided that, or conditional upon. | Unless and until, or this agreement terminates if. |
| Common examples | Financing approval, regulatory clearance, inspections or board approval. | Loss of a license, lapse of required insurance or a change in law. |
When condition precedent applies
A business uses a condition precedent when it wants to commit now but only perform once something is in place, such as signing a property purchase subject to financing and a satisfactory inspection. If the condition is not met by the stated date, the buyer can usually walk away without being in breach. Business acquisitions also rely on conditions such as regulatory approval before closing.
When condition subsequent applies
A business uses a condition subsequent when an existing deal should end if circumstances change, such as a distribution agreement that terminates if the distributor loses a required license. It protects the party that would be harmed by continuing after the change. For example, a sponsorship deal may end automatically if the sponsored athlete is suspended from competition.
Dates and deadlines to watch
Conditions precedent usually come with an outside date, sometimes called a long-stop date, by which the condition must be satisfied or waived, so check the contract. Missing that date often lets one or both parties terminate. Conditions subsequent may require prompt notice once the triggering event occurs, depending on the contract's wording.
Frequently asked questions
The obligation that depends on it generally never becomes due. Neither party is in breach just because the condition failed, and the contract may end or let a party terminate, depending on its wording. A party that wrongly prevents the condition from happening may not be allowed to rely on its failure.
Yes, usually by the party the condition is meant to protect. For example, a buyer whose purchase depends on financing can often choose to waive that condition and close anyway. Waivers are best made in writing, and some contracts say a waiver is only valid if it is written and signed.
They are closely related. In real estate and many sales contracts, a contingency is the everyday name for a condition precedent, such as an inspection contingency or a financing contingency. Both mean that a party's duty to perform depends on a specified event happening first.