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LEGAL GLOSSARY · CORPORATE & COMMERCIALWhat Is a Condition Precedent?
The gates that must open before a contract's main obligations switch on — approvals, consents and completions that decide whether closing happens at all.
Gyanendra Singh·Advocate·High Court of Madhya Pradesh, Jabalpur
What Does Condition Precedent Mean?
A condition precedent (CP) is an event or requirement that must occur before the principal obligations under a contract become operative. Until it is fulfilled, the agreement exists — governing conduct, confidentiality, exclusivity — but the core performance everyone signed up for remains switched off.
Its mirror image is a condition subsequent, which terminates obligations already running. Deals overwhelmingly use precedents: signing creates the framework, satisfaction triggers the closing.
What CP Lists Typically Contain
- Regulatory approvals: competition clearance, sector regulator sign-offs, government permissions where the transaction structure requires them.
- Corporate authorisations: board and shareholder resolutions, amended constitutional documents, issue of securities completed.
- Third-party consents: lenders, key customers or licensors whose contracts restrict change of control.
- Diligence closures: specified findings resolved — an IP assignment executed, litigation withdrawn, arrears paid.
- Mechanical completions: escrow funding, resignations tendered, policies procured, closing certificates delivered.
When a Condition Fails
- The principal obligation never arises — no closing, no purchase price moving.
- A party who prevents fulfilment cannot rely on the failure: prevention doctrine converts their obstruction into breach of contract.
- Long-stop dates bound the waiting period — after that date either side may exit without liability, unless delay resulted from the other's default.
- Which party bears the cost of pursuing each CP is allocated in the agreement; silence breeds closing-table fights.
Satisfaction, Waiver and Strategy
The party protected by a condition may waive it — choosing to close despite non-fulfilment — while the party obligated to procure it cannot excuse its own failure. Waiver should be recorded in writing to prevent later retraction. Strategically, CP lists are negotiating currency: buyers seek wide conditions preserving exit options, sellers push back with effort undertakings forcing buyers to pursue approvals genuinely rather than wait for expiry.
Conditions Precedent: Common Questions
1. If one CP fails, does the whole deal die?
Only if the failing condition is for a party's benefit and they elect not to waive it. Beneficiaries can waive conditions and close anyway; obligations to procure conditions must still be honestly pursued before any exit right matures.
2. What is a long-stop date?
The outside deadline by which all CPs must be satisfied, failing which either party may terminate. Well-drafted agreements exclude termination rights where the delay was caused by the other side's own default or obstruction.
3. Can a CP be something within only one party's control?
Yes — and drafting then distinguishes conditions from covenants. An event purely within a party's control functions better drafted as an obligation with breach consequences than as a condition excusing everyone when unmet.
4. Do CPs survive closing?
No — once satisfied or waived and closing completes, the principal obligations run and CP lists retire. Post-closing protections travel through indemnities, earn-outs and holdbacks instead, which serve different purposes entirely.
5. The other party is dragging feet on a CP they control. Options?
Document demands and deadlines in writing, invoking the effort covenant. Prevention of satisfaction defeats reliance on failure, and persistent obstruction supports specific-performance or damages claims rather than quiet expiry against you.
6. Are regulatory approvals always valid CPs?
Genuinely required approvals are the classic legitimate condition — competition and sector clearances especially. Conditions demanding approvals no statute requires read as disguised exit ramps and attract the same good-faith scrutiny as any other term.
Signing Soon? The CP List Decides Your Exits.
Every condition is leverage — given or received. Get yours drafted deliberately, not defaulted.
Contact Gyanendra Singh →Disclaimer: This explanation covers conditions precedent in general terms and is not legal advice. Effect depends on contract wording and facts; consult a qualified advocate about your matter.