What is a condition precedent in a contract?

A condition precedent is an event that must occur before a contractual obligation kicks in. Until the condition is met, the obligation does not arise and neither party is in breach for not performing it.

What happens if a condition precedent is not met?

The obligation gated by the condition simply does not arise. Unlike a breach of a promise, failure to satisfy a condition precedent typically means neither party is liable — the conditional obligation was never triggered.

Can a condition precedent be waived?

Generally yes, the party benefiting from the condition can choose to waive it and proceed with the transaction. This is common in real estate and M&A deals where buyers waive contingencies to strengthen their position.

Conditions Precedent: What Must Happen First

What Is a Condition Precedent?

A condition precedent is an event or action that must occur before a contractual obligation becomes enforceable. Until the condition is satisfied, the obligation does not arise — and neither party is in breach for not performing it.

How Conditions Precedent Work

Think of a condition precedent as a gate. The obligation exists in the contract, but it is locked behind the gate until the condition is met:

A loan agreement may state that funding is conditional on the borrower providing satisfactory financial statements. Until the statements are provided and approved, the lender has no obligation to fund.
A home purchase may be conditioned on the buyer obtaining a mortgage. If financing falls through, the buyer is not obligated to close.
A business acquisition may be conditioned on regulatory approval. Neither party must close until approval is obtained.

Common Examples

Due diligence completion. The buyer must complete due diligence to their satisfaction.
Financing contingency. The buyer must secure loan approval.
Regulatory approval. Government agencies must approve the transaction.
Third-party consents. Key customers or landlords must consent to assignment of contracts or leases.
No material adverse change. The business must not suffer a significant negative change before closing.

Conditions Precedent vs. Promises

This distinction is important:

If something is a promise, failure to do it constitutes a breach and the other party can seek damages.
If something is a condition precedent, failure to satisfy it means the gated obligation simply never arises — there is no breach, just no obligation to perform.

What to Watch For

Subjective conditions. Conditions like "to the buyer's satisfaction" give one party broad discretion to walk away. Consider whether objective standards are more appropriate.
Waiver provisions. Can the party benefiting from the condition choose to waive it and proceed anyway? This flexibility is usually desirable.
Time limits. Conditions precedent should have deadlines. Without them, an obligation could remain in limbo indefinitely.

When to Consult a Lawyer

Consider consulting an attorney when negotiating conditions precedent, particularly in M&A or real estate transactions where the consequences of an unmet condition are significant.

This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.