Conditions Precedent
Also called: Closing Conditions · Conditions to Closing
Conditions precedent are specific requirements that must be satisfied before a contract's obligations become binding or before a deal can close — such as regulatory approval, financing being secured, or a due diligence review being completed satisfactorily. Until they're met, the underlying deal doesn't take effect.
In more detail
A signed contract with unsatisfied conditions precedent is not the same as a completed deal — it's an agreement to proceed once the named conditions are met, and either party can typically walk away if a condition fails, depending on how the clause is drafted.
Common conditions include regulatory or third-party approvals, satisfactory completion of due diligence, financing being secured, and — in some deals — a material adverse change not having occurred between signing and closing.
Vague conditions ("satisfactory due diligence," with no defined standard) can become a way for one party to walk away for almost any reason, while precisely defined conditions give both sides more certainty about what actually needs to happen.
An investment agreement is signed subject to conditions precedent including regulatory approval and completion of financial due diligence. The investment doesn't actually close, and funds aren't transferred, until both conditions are satisfied or waived by the investor.
What our lawyers check
- What conditions must be satisfied, and how precisely they're defined
- Who has the right to waive a condition if it isn't met
- The deadline by which conditions must be satisfied before either party can walk away
- What happens to any deposits or preliminary payments if a condition fails
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
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