Conditions Precedent
Specific requirements that must be satisfied before a transaction can complete.
Full Definition
Conditions precedent (CPs) are contractual requirements that must be fulfilled before the parties are obligated to complete a transaction. They protect the buyer from proceeding if certain circumstances change or approvals cannot be obtained.
Common conditions precedent in UK deals:
- Regulatory approvals (CMA, FCA, sector regulators)
- Third-party consents (landlords, key customers, lenders)
- Shareholder approvals
- No material adverse change (MAC)
- Satisfactory completion of due diligence
- Financing conditions
- Key employee agreements
Mechanics:
- Long stop date: Deadline by which all CPs must be satisfied
- Satisfaction certificates may be required
- Some CPs can be waived by the benefiting party
- Failure to satisfy may trigger termination rights
Risk allocation:
- Seller typically responsible for CPs within their control
- Buyer responsible for financing and regulatory filings
- Both parties usually have obligations to use "reasonable endeavours" to satisfy CPs
Conditions precedent are negotiated heavily as they determine when (and if) the deal closes.
Related Terms
Completion
The legal transfer of ownership when all conditions are satisfied and the transaction formally closes.
Material Adverse Change (MAC)
A significant negative change in a business between signing and completion that may allow the buyer to withdraw.
Long Stop Date
The deadline by which all conditions must be satisfied and completion must occur, after which either party may terminate.
Signing
The execution of the definitive transaction agreements, which may or may not coincide with completion.