Table of Contents
In Short
- A condition precedent delays contract performance (or parts of it) until a specified event occurs.
- If the condition applies to the whole agreement, the contract will not take effect until it is met.
- Contracts should clearly state the condition, its deadline, and what happens if it is not fulfilled.
Tips for Businesses
Clearly draft any condition precedent to avoid legal uncertainty. Specify when the condition must be met, what steps each party must take, and what happens if it isn’t satisfied. Legal advice is useful to ensure your contracts reflect your intentions and reduce the risk of disputes.
Parties should define their contractual relationship clearly and carefully in a robust contract, using well-drafted provisions to reflect their intentions. As a supplier or customer, it is crucial to understand how the contracts your business signs work in practice. In particular, you need to know when your obligations begin so you can meet them correctly and reduce your legal risk. Some agreements include conditions that can delay performance until a specific event occurs. A condition precedent can affect whether a contract is binding straightaway or delay when certain obligations begin.
In certain circumstances, the parties do not become bound by the contract until they fulfil a specific condition. In other cases, the contract takes effect immediately, but the parties delay some obligations until they meet the condition. This article explains what conditions precedents are, how these clauses work in practice and their potential consequences.
What is a Condition Precedent?
Clear, robust, and well-drafted contracts can help your business avoid problems such as misunderstandings, manage risk, and enforce your rights effectively. Ambiguous terms can lead to uncertainty, delay or disputes. By using precise contractual language and setting out each party’s responsibilities in precise detail, your business can protect its position and ensure the contracts perform as intended. Contracts are, therefore, essential tools to help safeguard your business in its commercial projects.
A condition precedent, put simply, is a contractual clause that can postpone the performance of the contract or specific obligations under it until a defined event happens. That event might involve steps like signing a related agreement or external factors such as receiving regulatory approval. The clause will confirm that the parties will begin performance only if and when they satisfy the condition.
If the parties draft the condition to apply to the entire agreement, the contract does not become legally binding until they meet the condition. However, if the condition applies only to specific obligations, the rest of the contract stays in effect and continues to bind the parties. In that case, the parties do not need to perform those specific obligations until they fulfil the relevant conditions.
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Example
Some contractual offers may be conditional. For example, your business might offer to supply goods on the condition that a required licence is granted. If this is not fulfilled, then the offer may lapse.
However, the nature of the condition precedent will depend on how the contract is drafted and interpreted. Contractual interpretation determines whether a condition precedent exists and how it operates.
What Should a Condition Precedent Clause Include?
To ensure the clause operates properly, your business needs to cover important points, e.g. when the condition must be met. Depending on the condition’s nature and the agreement’s context, that could be a fixed deadline or a reasonable time for fulfilment.
It is also essential to make sure that the conditions are clearly visible. Where the condition affects the entire agreement, you should place the clause near the start of the operative terms. If it only applies to specific duties, the clause can appear wherever those obligations are set out in the agreement.
Continue reading this article below the formBenefits of Legal Advice
A condition precedent can help your business manage commercial risk by delaying the start of performance until key approvals, milestones, or documents are in place. However, if you do not draft the clause correctly or clearly, it can create legal uncertainty.
Legal advice can help your business ensure the condition precedent clause is clear, enforceable, and tailored to your commercial project. This is particularly important when the contract involves important factors, such as third-party approvals.
Key Takeaways
A condition precedent is a clause that can delay the performance of a contract or specific duties until a defined event occurs. However, it is crucial to draft any such provisions with care and attention and understand their implications in practice. Your business should include a clear deadline in the clause and explain what will happen if the parties do not meet the condition. It should also identify who is responsible for taking the required steps. If you need help drafting clear and enforceable terms, seek legal advice from a commercial contracts solicitor.
If you need help with your contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
It is a clause that can stop a contract or certain obligations from taking effect unless the parties satisfy a specific condition.
That depends on the wording of your contract. For instance, the agreement might lapse, one party may choose to terminate it, or the parties may agree to extend the condition.
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