Conditions Precedent: What Must Happen Before the Deal Binds

A condition precedent is an event or requirement that must occur before an obligation, or the whole contract, becomes effective. In an M&A or financing deal, the conditions precedent to closing are the list of things each side has to deliver or satisfy before anyone is forced to wire money or sign over shares. Get the list wrong and you either close a deal you should have walked from, or you give the other side a free exit. The clause is short to read and easy to underestimate, but it controls when, and whether, the deal actually binds.

Reviewed and corrected on 12 October 2026. This is general information, not legal advice; check the cited statute or opinion before relying on it.

TL;DR

• A condition precedent (CP) is something that must happen before a duty to perform arises. Until every CP is satisfied or waived, the obligation it gates does not become enforceable.
• In M&A and financing, conditions precedent to closing are a checklist (regulatory approvals, third-party consents, no material adverse change, accurate reps, delivery of documents) that must be met before either side is bound to close.
• CPs run to each party's obligations separately. A party can usually waive a CP that exists for its own benefit, but not one that protects the other side or a third party.
• Most deals require reasonable efforts (or "commercially reasonable efforts") to satisfy the CPs. A party that does not try, or that causes a condition to fail, can lose the right to rely on it (the prevention doctrine, see below).
• If a CP fails by the long-stop date (the outside closing date), the usual consequence is a walk-away right: the deal terminates and neither side is liable for the failure itself, subject to the termination clause.
• Do not confuse a condition precedent (gates an obligation before it arises) with a condition subsequent (an event that discharges an obligation that already existed) or with a covenant (a promise whose breach gives a damages claim; it excuses the other side from closing only if the breach is serious enough under general contract law or the contract also makes performance of the covenant a closing condition).

What a conditions precedent clause actually does

The clause sets out the events that must occur before performance is owed. Three distinctions do most of the work.

1. Condition to effectiveness vs condition to closing. Some CPs gate the entire contract: until they happen, there is no binding agreement at all (a financing that only commits "subject to credit committee approval," for example). Most deal CPs are narrower: the contract is signed and binding now, but the obligation to close is suspended until the conditions are met. The signed-but-not-closed gap is exactly where conditions precedent live.

2. Whose obligation each CP gates. A well-drafted clause separates the conditions to the buyer's obligation to close, the conditions to the seller's obligation to close, and the mutual conditions that gate both. A regulatory approval is usually mutual. The accuracy of the seller's reps is usually a buyer-side condition (the buyer can waive it; the seller cannot). Mapping each CP to the right party is the heart of the clause.

3. Satisfaction vs waiver. A CP is discharged in one of two ways: it is satisfied (the event actually happens) or it is waived by the party the condition protects. Waiver lets a party close despite an unmet condition that exists for its benefit. The clause should say who may waive what, and a clean draft requires waivers to be in writing.

A condition is not a promise. If a covenant is broken, the usual remedy is a claim for damages (deal agreements often also make covenant compliance a closing condition, as clause (b)(ii) below does). If a condition is not met, the gated obligation simply never arises, so the remedy is "you do not have to close," not "you owe me money." Conflating the two is the most common conceptual error in the clause.

Why it matters: the dollars at stake

Picture a $40,000,000 acquisition. The buyer's obligation to close is conditioned on (among other things) the target's key customer contract being consented to and assigned, and on no material adverse change in the business between signing and closing.

• If the customer consent is a real closing condition and the consent never comes, the buyer walks at the long-stop date and owes nothing. It keeps its $40,000,000.
• If that same item was drafted as a covenant to use efforts to obtain consent, and not a condition, the buyer may be obligated to close anyway and left suing the seller for damages over a consent that was never the seller's to give.

Same fact (a missing consent), opposite outcome, decided entirely by whether the item sits in the conditions list or the covenants list. On a deal this size, that drafting choice is the difference between a clean exit and a closing the buyer did not want, plus litigation.

Who wants what

The pattern: the party that has to perform (write the check, fund the loan) wants more conditions so it has more off-ramps; the party that wants the money wants the conditions list short and the efforts obligations on the other side strong, so the deal is as close to certain as possible.

Market-standard language

A conditions-to-closing provision in an acquisition agreement typically reads close to this:

CONDITIONS PRECEDENT.

(a) Conditions to Each Party's Obligations. The respective obligations of
Buyer and Seller to consummate the Closing are subject to the satisfaction
(or written waiver by both parties) at or prior to the Closing of the
following conditions: (i) all required approvals under [HSR / applicable
antitrust law] shall have been obtained or the applicable waiting period
shall have expired; and (ii) no governmental order shall be in effect that
prohibits the consummation of the transactions.

(b) Conditions to Buyer's Obligations. Buyer's obligation to consummate the
Closing is further subject to the satisfaction (or written waiver by Buyer)
of the following: (i) the representations and warranties of Seller shall be
true and correct in all material respects as of the Closing Date as though
made on the Closing Date; (ii) Seller shall have performed in all material
respects its covenants required to be performed at or prior to Closing;
(iii) since the date of this Agreement, no Material Adverse Effect shall
have occurred and be continuing; and (iv) Seller shall have delivered the
closing deliverables set forth in Section [__].

(c) Conditions to Seller's Obligations. Seller's obligation to consummate
the Closing is further subject to the satisfaction (or written waiver by
Seller) of the following: (i) the representations and warranties of Buyer
shall be true and correct in all material respects as of the Closing Date;
and (ii) Buyer shall have paid the Purchase Price in accordance with
Section [__].

(d) Efforts. Each party shall use [commercially reasonable] efforts to
cause the conditions within its control to be satisfied as promptly as
practicable. A party may not rely on the failure of any condition to be
satisfied if such failure was caused by that party's breach of this
Agreement.

(e) Long-Stop Date. If the Closing has not occurred on or before [date]
(the "Outside Date"), either party may terminate this Agreement under
Section [Termination], provided that the right to terminate is not
available to a party whose breach was the principal cause of the failure
to close.

The structure matters as much as the words. Splitting the conditions into mutual, buyer-side, and seller-side blocks is what makes waiver work cleanly: each party can waive what is in its own block without anyone arguing about whose condition it was.

The negotiation: standard, fallback, walk-away

Conditions precedent are negotiated item by item. The big trades:

The recurring fight is over which items are conditions and which are covenants, and over the efforts standard that polices the conditions a party controls. Drafters usually treat "commercially reasonable efforts" as the least demanding of the common standards. "Hell-or-high-water" language, usually used for antitrust or other regulatory approvals, is meant to force a party to take whatever steps the clause lists to clear that condition, and can include divestitures if the clause says so. Courts do not always draw the lines drafters expect between the lesser standards (see the jurisdiction notes below).

Common variations

The same clause shows up in different shapes depending on the deal:

• Conditions to effectiveness. The whole agreement is "subject to" something (board approval, a financing commitment, due diligence). Until it happens, there is no binding contract, only an agreement to agree. Use this sparingly. A promise that leaves the promisor free to withdraw "at his own unrestricted pleasure" can be treated as illusory, although California's Supreme Court has given effect to "satisfaction" clauses and judges dissatisfaction by a reasonableness or good-faith standard depending on the kind of clause (Mattei v. Hopper, 51 Cal. 2d 119 (1958)).
• Conditions to each advance (financing). In a credit agreement, the borrower must re-satisfy a short list of conditions (reps still true, no default, an officer's certificate) before each drawdown, not just at first closing.
• Conditions to a single obligation. A payment, a milestone, or a release of escrow can be gated by a CP without touching the rest of the contract ("payment is due upon and conditioned on delivery of the certificate of occupancy").
• MAC / MAE as a condition. A no-material-adverse-change condition lets the buyer walk if the target deteriorates between signing and closing. It overlaps heavily with the standalone material adverse change clause and is usually negotiated alongside it.
• Condition subsequent. The mirror image: an obligation exists now but is discharged if a later event occurs. ("This guaranty terminates if the borrower obtains a replacement guarantor within 90 days.") A condition precedent gates an obligation before it arises; a condition subsequent unwinds one that already arose.

Jurisdiction and enforceability notes

Conditions precedent are a standard contract device, but how they bite depends on the governing law and the exact wording. The decisions below are from New York, California and Delaware, so check the controlling state's law.

• Express conditions are enforced as written, but doubtful language is read as a promise. New York's highest court states that "[e]xpress conditions must be literally performed," and also that "courts will interpret doubtful language as embodying a promise or constructive condition rather than an express condition," a preference that is "especially strong" where reading it as a condition would risk a forfeiture. That preference does not apply where the condition is "expressed in unmistakable language" (Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685 (1995), a sublease letter agreement, not an M&A deal). If you want a true condition, say so unmistakably ("it is a condition to X's obligation that...").
• Prevention. Under the prevention doctrine, "where a party's breach by nonperformance contributes materially to the non-occurrence of a condition of one of his duties, the non-occurrence is excused." The Court of Chancery applied it to stop a buyer relying on the absence of debt financing (a condition to the seller's specific-performance right) and ordered the deal to close, and held it does not require bad faith, only "some form of deliberate action" (Snow Phipps Group, LLC v. KCAKE Acquisition, Inc., C.A. No. 2020-0282-KSJM (Del. Ch. Apr. 30, 2021), quoting Restatement (Second) of Contracts section 245). The Delaware Supreme Court has also held that once a breach of an efforts covenant is established, the burden is on the breaching party to show the breach did not materially contribute to the failure of the condition (Williams Cos. v. Energy Transfer Equity, L.P., 159 A.3d 264 (Del. 2017)). The "may not rely on its own breach" language in the sample clause writes this rule into the contract.
• Efforts standards are less tidy than the ladder suggests. In Williams the Delaware Supreme Court, endorsing Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 965 A.2d 715 (Del. Ch. 2008), said that covenants like the "commercially reasonable efforts" and "reasonable best efforts" provisions before it "impose obligations to take all reasonable steps to solve problems and consummate the transaction," and it did not distinguish between the two standards. The Court of Chancery has noted that "[c]ommentators who have surveyed the case law find little support for the distinctions that transactional lawyers draw" (Akorn, Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL (Del. Ch. Oct. 1, 2018), aff'd, 198 A.3d 724 (Del. 2018) (a short order that affirmed the result and said the court was not commenting on the Court of Chancery's reasoning)). That opinion also cites a 2006 article describing the case law as "littered with conflicting interpretations of efforts clauses." We did not review the law of other states, so define the standard if the outcome matters; do not assume a bright line.
• Bring-down and MAE standards are different tests. In Akorn the court, quoting Hexion, said a buyer invoking a material adverse effect "faces a heavy burden," and that an "in all material respects" qualifier "seeks to exclude small, de minimis, and nitpicky issues." The two standards are not interchangeable, so the choice in the bring-down condition matters.
• Waiver can excuse a condition. The New York court notes that the non-occurrence of a condition "may yet be excused by waiver, breach or forfeiture" (Oppenheimer). Whether closing over an unmet condition, or accepting performance, amounts to waiver without a signed waiver depends on the governing law and the facts. Not verified in our October 2026 review: a decision on closing as implied waiver. A "waiver only in writing" provision helps but is not always decisive.
• Conditions to effectiveness can sink the contract. A mere agreement to agree, "in which a material term is left for future negotiations, is unenforceable" in New York (Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105 (1981)). There is a line between a conditional contract and an unenforceable agreement to agree, and where a condition leaves the outcome to one party's unconstrained choice, see Mattei above.

This is general information, not legal advice for a specific deal, and the rules above are stated at a high level; the construction of any condition turns on the governing law and the exact wording. We reviewed the decisions cited above on 12 October 2026. Confirm against the controlling state's law before you rely on it. For the related promises that sit alongside conditions in a deal, see our guide on representations and warranties.

Review checklist

• An item you care about is drafted as a covenant when it should be a condition (or the reverse), so the remedy on failure is the wrong one.
• A condition depends on a third party (consent, approval, license) but is paired with a hard obligation to deliver it, promising what the party cannot control.
• The bring-down standard is stricter or looser than intended ("in all respects" vs "in all material respects" vs MAC-qualified).
• There is no efforts obligation, so a party can let a condition fail by inaction, or the efforts standard ("best" vs "commercially reasonable") is not the one you negotiated.
• No "may not rely on its own breach" language, leaving room for a party to engineer a failed condition.
• The long-stop date is missing, or its extension and termination mechanics do not line up with the termination clause.
• Waiver rights are unclear: it does not say who may waive which condition, or it lets a party waive a condition that protects the other side.
• The same obligation appears in both the conditions list and the covenants list, creating a conflict on failure.

How it interacts with other clauses

Conditions precedent never sit alone; they wire directly into the deal mechanics around them:

• Representations and warranties: the accuracy of the reps at closing (the "bring-down") is one of the most heavily negotiated conditions.
• Termination: the long-stop date and the consequences of a failed condition live in the termination clause; the two must be read together.
• Material adverse change: "no MAC since signing" is a classic closing condition and is defined in (or cross-referenced from) the MAC clause.
• Further assurances: the post-signing efforts to obtain consents and approvals that satisfy the conditions often live here.

For the broader drafting workflow, see how to draft a contract. You can also browse the full clause library.

FAQ

What is a condition precedent? A condition precedent is an event or requirement that must occur before a contractual obligation, or the whole contract, becomes effective. Until the condition is satisfied or waived, the obligation it gates does not arise and cannot be enforced.

What are conditions precedent to closing? In an M&A or financing deal, they are the checklist of things that must be met before either side is obligated to close: regulatory approvals, third-party consents, accurate reps at closing, no material adverse change, and delivery of the closing documents. Some are mutual; others gate only the buyer's or only the seller's obligation.

What is the difference between a condition precedent and a condition subsequent? A condition precedent must happen before an obligation arises. A condition subsequent is an event that discharges an obligation that already exists. A CP turns a duty on; a condition subsequent turns an existing duty off.

What is the difference between a condition and a covenant? A condition gates an obligation: if it fails, the obligation never arises and the protected party can walk without liability. A covenant is a promise: if it is breached, the usual remedy is a claim for damages, and the other side stays bound to close unless the breach is serious enough to excuse it or the contract makes the covenant a closing condition. The same item drafted as one or the other produces very different outcomes on failure.

Can a party waive a condition precedent? Usually yes, if the condition exists for that party's benefit. A buyer can typically waive a buyer-side condition and close anyway. A party generally cannot unilaterally waive a condition that protects the other side or a third party, and clean drafting requires waivers to be in writing.

What happens if a condition precedent is not satisfied? The gated obligation does not become due. In a deal, if the conditions are not met by the long-stop (outside) date, the usual result is a walk-away right: either party can terminate under the termination clause, generally without liability for the failure itself, unless one party's breach caused the condition to fail.

What does "use reasonable efforts to satisfy the conditions" mean? It is an obligation to actively work to bring about the conditions within your control, rather than letting them lapse. The exact standard ("commercially reasonable efforts," "reasonable best efforts," "best efforts," or a "hell-or-high-water" regulatory standard) sets how much a party must do. Drafters rank them, but in Williams the Delaware Supreme Court applied the same affirmative-obligation reading to two of them, so define the standard rather than rely on the label.

Arshita Anand

Co-Founder & CEO · Attorney

Arshita leads product and strategy at Vaquill AI, the US primary law data API. As an attorney, she decides which law we carry, how each section is sourced and cited, and what legal AI and compliance teams need from the data.