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.
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 cannot sit on its hands and then claim the deal fell through.
- 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, not an excuse to walk).
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, you sue for damages. 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
| Buyer / lender (party that must perform) | Seller / borrower (party that wants the deal to close) | |
|---|---|---|
| Number of CPs | More, and broadly drafted | Few, and narrowly drafted |
| "No material adverse change" condition | Wants it, broadly defined | Resists it, or narrows the carve-outs |
| Bring-down of reps | "Accurate in all respects" at closing | "Accurate in all material respects," MAC-qualified |
| Third-party consents | A condition to its obligation to close | A covenant to use efforts, not a hard condition |
| Efforts standard to satisfy CPs | "Reasonable efforts," loosely policed | "Best efforts" / "hell-or-high-water" on the other side |
| Long-stop date | Generous, with extension rights | Short, to force certainty |
| Waiver | Wants the right to waive its own CPs and close | Wants the deal to close regardless |
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:
| Issue | Opening position | Fallback both sides accept | Walk-away |
|---|---|---|---|
| Bring-down of reps | "True and correct in all respects" at closing | "True and correct in all material respects," or qualified by a MAC standard | No bring-down condition at all |
| MAC closing condition | Broad "no Material Adverse Effect," few carve-outs | Defined MAC with standard carve-outs (market, industry, the deal itself) | No MAC condition |
| Third-party consents | A hard condition to closing | A condition only for specified material consents; the rest are efforts covenants | Consents are covenants only, never conditions |
| Efforts to satisfy CPs | "Commercially reasonable efforts" | "Reasonable best efforts" on the regulatory items | "Hell-or-high-water" (must take any action to clear antitrust) |
| Long-stop date | Long, with one or more extensions | Fixed date with a single automatic extension if only the regulatory CP is outstanding | Short date, no extension |
| Waiver | Each party waives only its own CPs, in writing | Same | Either party can waive anything |
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. "Commercially reasonable efforts" gives the most latitude; "hell-or-high-water" (mostly an antitrust term) forces a party to do whatever it takes to clear a regulatory condition, including divesting assets.
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; courts may treat a deal riddled with conditions to effectiveness as unenforceable.
- 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 and enforceable contract device across US jurisdictions, but a few rules shape how they bite:
- Conditions are construed narrowly. Courts generally disfavor forfeiture, so where language is ambiguous about whether a clause is a condition or a promise, many courts will read it as a covenant rather than a condition to avoid a harsh forfeiture. If you want a true condition, say so unmistakably ("it is a condition to X's obligation that...").
- Prevention / good faith. Under the common-law prevention doctrine, a party that wrongfully causes a condition to fail cannot then rely on the unmet condition to escape. The "may not rely on its own breach" language in the sample codifies this. The implied covenant of good faith reinforces it.
- Efforts standards are not uniform. "Best efforts," "reasonable best efforts," and "commercially reasonable efforts" are interpreted differently across states, and courts read them on the facts. Define the standard if the outcome matters; do not assume a bright line.
- Waiver can be implied. A party that proceeds to closing, or accepts performance, despite an unmet condition for its benefit may be held to have waived it even without a signed waiver. A "no oral waiver / waiver only in writing" provision helps but is not always decisive.
- Conditions to effectiveness can sink the contract. If the conditions make the deal entirely contingent on a future decision one party controls (financing "subject to our approval," for example), a court may find there was never a binding agreement. There is a line between a conditional contract and an unenforceable agreement to agree.
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 (checked July 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.
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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 party stays bound and the remedy is a claim for damages. 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" antitrust standard) sets how much a party must do, and courts read those standards differently, so the wording matters.
Related clauses
Clauses that get negotiated alongside this one.
