What is Condition Precedent?

Conditions precedent and conditions subsequent are mechanisms that allow parties to sign a contract while deferring full legal commitment until certain external circumstances are resolved.

Under a condition precedent, the contract is agreed but does not take effect until the specified condition is satisfied. A classic example is a purchase agreement "subject to financing": the contract is signed, but only becomes binding if the buyer secures the required funding. If financing is not obtained, the contract falls away.

A condition subsequent operates differently: it terminates an already operative contract when a specified event occurs. For example, a service agreement that automatically ends if the client closes its business at a particular location. The key difference is direction — a condition precedent suspends a contract waiting to start; a condition subsequent dissolves a contract already running.

For a provision to qualify as a condition, the triggering event must be genuinely uncertain. If the occurrence of the event is certain and only the timing is unknown, the provision is a time clause rather than a condition.

In commercial practice, conditions precedent are common in property transactions (subject to satisfactory survey or title search), corporate acquisitions (subject to due diligence and shareholder approval), subsidy-dependent projects (subject to grant award), and regulated sectors (subject to regulatory approval).

When drafting a condition precedent, three elements are critical: precision in describing the condition, a deadline by which the condition must be satisfied or the contract lapses, and a clear procedure for notifying fulfilment or non-fulfilment.

Conditions precedent allow you to secure agreement on terms in advance while reserving your ability to walk away if the underlying circumstances do not materialise. They are an essential tool whenever a commitment depends on external approval, funding, or events beyond the parties' control.

For SMBs, conditions precedent are relevant in contracts that depend on grant funding, planning permission, financing approval, or a partner's board decision. They allow early alignment on terms without assuming premature risk.