TL;DR: Conditions precedent are the contractual gatekeepers that must be satisfied (or waived) before a party's obligation to perform, or before the closing of a transaction, actually kicks in. They are the deal's checklist of "must-haves" and they give each party the right to walk away if the other side has not delivered what was promised. In M&A, conditions precedent to closing typically include accuracy of representations, compliance with covenants, absence of a material adverse change, and receipt of necessary regulatory approvals. The drafting of these conditions determines who bears the risk of events between signing and closing, and how much leverage each party has to renegotiate or terminate the deal. Get them wrong, and a buyer finds itself obligated to close a deal it should walk away from, or a seller discovers the buyer has a free option to abandon the transaction at will.

‍

What Is a Condition Precedent?

A condition precedent (often abbreviated as "CP") is a contractual provision that makes a party's obligation to perform contingent on the occurrence or non-occurrence of a specified event, fact, or state of affairs. Until the condition is satisfied, the obligation does not arise. If the condition fails and cannot be waived, the contingent obligation never comes into existence, and the party is excused from performance without liability for breach.

In transactional practice, conditions precedent most commonly appear as conditions to closing in acquisition agreements, where they define the prerequisites that must be met before the buyer is obligated to pay the purchase price and the seller is obligated to transfer the target. However, conditions precedent also appear in loan agreements (conditions to funding), construction contracts (conditions to commencement of work), insurance policies (conditions to coverage), and commercial agreements (conditions to delivery or acceptance).

It is important to distinguish conditions precedent from conditions subsequent. A condition precedent must be satisfied before an obligation arises. A condition subsequent, by contrast, operates to terminate an obligation that has already come into existence. For example, an insurance policy that provides coverage subject to the insured giving timely notice of a claim contains a condition subsequent: coverage exists from the policy's inception, but the insurer's obligation terminates if the insured fails to provide notice. The distinction matters because it affects the burden of proof (the party relying on a condition precedent generally bears the burden of showing it was satisfied, while the party relying on a condition subsequent bears the burden of showing it was not met) and the remedies available.

‍

Why It Matters

Deal Certainty vs. Optionality: Conditions precedent define the boundary between a binding commitment and an option. A deal with few, narrow conditions gives the seller high certainty of closing. A deal with broad, subjective conditions gives the buyer significant optionality to walk away. Sellers in competitive auction processes routinely evaluate bids based on the breadth of closing conditions, and "certainty of close" is often more valuable than a higher headline price.
Interim Risk Allocation: Between signing and closing, business conditions can change, regulatory environments can shift, and new information can emerge. Conditions precedent allocate the risk of these interim developments. A MAC condition, for example, allocates the risk of a material deterioration in the target's business to the seller; without it, the buyer bears that risk.
Regulatory and Third-Party Dependencies: Many transactions require approvals from regulators (antitrust clearance, foreign investment screening, industry-specific licenses), third-party consents (landlord consents, customer contract assignments, lender waivers), or other external actions. Conditions precedent tied to these approvals determine who bears the risk of delay or denial and what level of effort each party must expend to obtain them.
Termination Rights and Break Fees: Conditions precedent interact directly with termination provisions. If a condition cannot be satisfied by the outside date (also called the "drop-dead date" or "long-stop date"), the agreement typically gives one or both parties the right to terminate. The allocation of break fees or reverse break fees upon termination depends on which party's condition failed and why.
Waiver Dynamics: The right to waive a condition precedent is a powerful tool. A buyer who can waive all of its own closing conditions retains the flexibility to close a deal even if certain conditions are not strictly satisfied. Conversely, a seller who can waive a buyer's condition may force a closing that the buyer is trying to avoid. The mechanics of waiver, including who may waive, whether waiver must be in writing, and whether partial waiver is permitted, are often heavily negotiated.

‍

Key Elements of Well-Drafted Conditions Precedent

Accuracy of Representations and Warranties: The most common closing condition requires that the other party's representations and warranties be true and correct as of the closing date. The key negotiation point is the standard of accuracy: must representations be true in all respects, true in all material respects, or true except where the failure would not constitute a material adverse effect? The "materiality scrape" (removing embedded materiality qualifiers for purposes of the closing condition) determines how much inaccuracy a party must tolerate before it can refuse to close.
Compliance with Covenants: A condition requiring that the other party has performed all of its pre-closing covenants in all material respects. This covers obligations such as conducting the business in the ordinary course, obtaining required consents, providing access and information, and refraining from prohibited actions. The standard is typically "in all material respects" rather than strict compliance, recognizing that minor, immaterial deviations should not give the other party a walk-away right.
No Material Adverse Change (MAC/MAE): A condition that no material adverse change or material adverse effect has occurred with respect to the target's business between signing and closing. The MAC condition is the buyer's primary protection against a significant deterioration in the target's value during the interim period. MAC definitions are among the most heavily negotiated provisions in any acquisition agreement and typically contain extensive carve-outs for industry-wide conditions, general economic changes, changes in law, and the effects of the transaction itself.
Regulatory Approvals: Conditions requiring receipt of necessary government approvals, including antitrust clearance (HSR Act filing in the US, CMA review in the UK, EU merger control), CFIUS approval for transactions involving US national security concerns, and industry-specific regulatory approvals (banking, insurance, telecommunications, healthcare). The scope of the buyer's obligation to obtain these approvals, from "reasonable best efforts" to "hell or high water" commitments, is a central negotiation point.
Third-Party Consents: Conditions tied to obtaining consents from contract counterparties, landlords, joint venture partners, or other third parties whose agreements require consent to a change of control or assignment. The key question is whether the failure to obtain any single consent is a condition to closing or whether consents are required only for a specified list of material contracts.
No Injunction or Legal Prohibition: A mutual condition that no court order, injunction, or legal prohibition prevents the consummation of the transaction. This is typically a mutual condition that neither party can waive unilaterally, as closing in violation of a court order or legal prohibition exposes both parties to liability.
Officer's Certificate and Bring-Down: A condition requiring delivery of an officer's certificate confirming satisfaction of the accuracy and covenant compliance conditions. The bring-down certificate serves as the formal mechanism by which the certifying party confirms, at closing, that the conditions continue to be satisfied. The standard for the bring-down (to the officer's knowledge vs. unconditional certification) affects the certifying officer's personal liability exposure.
Satisfaction vs. Best-Efforts Obligations: For each condition, clarify whether the party benefiting from the condition has an affirmative obligation to use efforts to cause its satisfaction, or whether the condition is a passive right. For example, if regulatory approval is a mutual condition, does the buyer have an obligation to use "reasonable best efforts" or "commercially reasonable efforts" to obtain clearance? The distinction between these effort standards, while often litigated, remains imprecise, making specific behavioral commitments (e.g., agreeing to divest specified assets) more reliable than generalized effort standards.

‍

Market Position & Benchmarks

Where Does Your Clause Fall?

Buyer-Favorable: Broad MAC definition with few carve-outs, representations must be true in all respects (no materiality scrape), financing condition included, extensive list of required third-party consents, buyer may terminate if any individual CP is not satisfied by the outside date, no "hell or high water" commitment on regulatory approvals, buyer has sole discretion to waive its own conditions.
Market / Balanced: MAC definition with standard carve-outs (general economic conditions, industry-wide changes, changes in law, effects of the announced transaction), representations must be true in all material respects or subject to MAE qualifier, no financing condition (buyer bears financing risk), material contracts list for required consents, reasonable best efforts on regulatory approvals, mutual termination right if outside date passes without CP satisfaction.
Seller-Favorable: Narrow MAC definition with broad carve-outs including pandemic, force majeure, and changes in financial markets, representations subject to double-materiality scrape (materiality qualifiers removed for both accuracy and indemnification purposes), "hell or high water" commitment on regulatory approvals (buyer must divest assets or accept behavioral remedies), minimal third-party consent requirements, reverse break fee payable if buyer fails to close due to regulatory failure.

‍

Market Data

According to the 2023 ABA Private Target M&A Deal Points Study, approximately 94% of deals included a bring-down of representations as a condition to closing, and 92% included a covenant compliance condition. MAC conditions appeared in approximately 67% of private-target deals.
A materiality scrape (removing embedded materiality qualifiers from representations for purposes of the closing condition) appeared in approximately 58% of deals in 2023, up from 45% in 2019, reflecting growing buyer pushback on double-materiality protection.
Financing conditions (also called "financing outs") appeared in only 3% of private-target deals and 0% of public-target deals in 2023. The market standard is for the buyer to bear the risk of financing failure, with the buyer's recourse limited to pursuing its financing sources.
The "hell or high water" commitment, under which the buyer agrees to take any and all actions necessary to obtain regulatory clearance (including divestitures), appeared in approximately 12% of strategic deals and 5% of financial sponsor deals in 2023, according to data from Practical Law.
The average time between signing and closing for US M&A transactions requiring antitrust review was approximately 4.5 months in 2023, up from 3.2 months in 2019, reflecting longer FTC and DOJ review timelines. This trend has increased the importance of outside date negotiations and regulatory effort standards.
According to a 2024 Houlihan Lokey study, MAC claims were raised in approximately 3% of completed US M&A transactions between 2019 and 2024, but fewer than 15% of those claims resulted in a successful refusal to close. Delaware courts have maintained a high bar for MAC invocation, requiring proof of a durationally significant decline in the target's earnings power.

‍

Sample Language by Position

Buyer-Favorable: "The obligation of Buyer to consummate the transactions contemplated hereby is subject to the satisfaction (or waiver by Buyer in its sole discretion) of each of the following conditions: (a) the representations and warranties of Seller set forth in this Agreement shall be true and correct in all respects as of the Closing Date with the same force and effect as though made on and as of such date; (b) Seller shall have performed and complied with all covenants and agreements required to be performed or complied with by Seller on or prior to the Closing Date; (c) since the date of this Agreement, no Material Adverse Effect shall have occurred; and (d) all governmental approvals and third-party consents listed on Schedule 7.1 shall have been obtained on terms reasonably satisfactory to Buyer."

Balanced: "The obligation of Buyer to consummate the Closing is subject to the satisfaction (or waiver by Buyer) of each of the following conditions: (a) the representations and warranties of the Company set forth in this Agreement (disregarding all qualifications as to materiality or Material Adverse Effect contained therein) shall be true and correct in all material respects as of the Closing Date; (b) the Company shall have performed in all material respects all covenants required to be performed by it prior to the Closing; (c) since the date hereof, no Material Adverse Effect shall have occurred; and (d) Buyer shall have received all consents and approvals required under the HSR Act."

Seller-Favorable: "The obligation of Buyer to consummate the Closing is subject to the satisfaction (or waiver by Buyer) of each of the following conditions: (a) the Fundamental Representations shall be true and correct in all respects (other than de minimis inaccuracies) and all other representations shall be true and correct in all respects (disregarding all qualifications as to materiality or Material Adverse Effect) except where the failure to be true and correct would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; (b) the Company shall have performed in all material respects the covenants required to be performed by it; and (c) no Governmental Order shall prohibit the consummation of the transactions. For the avoidance of doubt, the receipt of any third-party consent or Governmental Approval (other than as set forth in clause (c)) shall not be a condition to Buyer's obligation to consummate the Closing."

‍

Example Clause Language

Merger Agreement (Public Company): "The respective obligations of each Party to consummate the Merger shall be subject to the satisfaction or waiver (to the extent permitted by applicable Law) of the following conditions: (i) the Company Stockholder Approval shall have been obtained; (ii) any applicable waiting period under the HSR Act shall have expired or been terminated; (iii) no Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, or entered any Law or Order that is in effect and that has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger; and (iv) the Registration Statement shall have become effective under the Securities Act and no stop order suspending the effectiveness thereof shall be in effect."

Loan Agreement (Conditions to Initial Funding): "The obligation of each Lender to make its initial Loan hereunder is subject to the satisfaction of each of the following conditions precedent: (a) the Administrative Agent shall have received each of the documents, instruments, and agreements listed on the Closing Checklist, each in form and substance satisfactory to the Administrative Agent; (b) the representations and warranties of the Borrower contained herein shall be true and correct in all material respects; (c) no Default or Event of Default shall have occurred and be continuing; (d) the Borrower shall have paid all fees and expenses then due and payable; and (e) the Administrative Agent shall have received a favorable opinion of counsel to the Borrower covering such matters as the Administrative Agent shall reasonably request."

Real Estate Purchase Agreement: "Buyer's obligation to consummate the purchase of the Property is conditioned upon the satisfaction of each of the following conditions on or before the Closing Date: (a) Buyer's receipt of a commitment for an owner's policy of title insurance showing title to the Property to be good and marketable, subject only to the Permitted Exceptions; (b) receipt of all governmental approvals necessary for Buyer's intended use of the Property, including without limitation zoning confirmation and environmental clearance; and (c) the physical condition of the Property being substantially the same as of the Effective Date, ordinary wear and tear excepted, and no portion of the Property having been taken or condemned or being the subject of a pending or threatened condemnation proceeding."

‍

Common Contract Types

Merger and Acquisition Agreements: Conditions to closing are the backbone of any signed-but-not-yet-closed acquisition, defining the prerequisites to the buyer's obligation to pay and the seller's obligation to transfer.
Credit Agreements and Loan Documents: Conditions to initial funding (and sometimes conditions to subsequent borrowings) require delivery of legal opinions, officer's certificates, financial statements, and confirmation of no default.
Joint Venture Agreements: Formation of the JV entity and initial capital contributions are often subject to conditions including regulatory approvals, IP assignments, and execution of ancillary agreements.
Real Estate Purchase Agreements: Conditions covering title clearance, environmental assessments, zoning approvals, financing contingencies, and physical inspections are standard in commercial real estate transactions.
Insurance Policies: Conditions precedent to coverage, such as timely premium payment, disclosure of material facts, and notice of claims, determine whether the insurer's obligation to indemnify is triggered.
Construction and Engineering Contracts: Conditions to commencement, milestone payments, and substantial completion certifications govern the sequencing of obligations in complex construction projects.

‍

Negotiation Playbook

Key Drafting Notes

Apply the materiality scrape thoughtfully: A full materiality scrape removes all embedded materiality qualifiers from representations for purposes of the closing condition, lowering the threshold for the buyer to refuse to close. Consider a tiered approach: full scrape for fundamental representations (organization, authority, capitalization) and a modified scrape (removing qualifiers but applying an aggregate MAE threshold) for business representations.
Distinguish between mutual and unilateral conditions: Conditions that protect both parties (no injunction, regulatory approvals) should be mutual. Conditions that protect only one party (accuracy of the other party's representations) should be unilateral and waivable by the benefiting party. Never allow one party to refuse to close based on its own failure to satisfy a condition within its control.
Define the "hell or high water" commitment precisely: If the buyer agrees to a "hell or high water" obligation on regulatory approvals, define its limits. Does the buyer have to agree to divestitures? Up to what percentage of the combined business? Does it have to accept behavioral remedies (pricing commitments, firewall requirements)? A blanket "hell or high water" commitment without caps exposes the buyer to potentially destroying the strategic rationale for the deal.
Align conditions with the outside date: Ensure the outside date provides sufficient time for all conditions to be satisfied, including regulatory review timelines. Consider an automatic extension of the outside date if the only unsatisfied condition is regulatory approval and the parties are still engaged in the approval process.
Draft waiver provisions with care: Specify that a waiver of any condition is not a waiver of any other condition, that a waiver must be in writing, and that a partial waiver does not constitute a full waiver. Address whether a party that waives a condition retains its indemnification rights for the underlying matter or whether the waiver extinguishes those rights.

‍

Common Pitfalls

Financing conditions in a seller's market: Including a financing condition (allowing the buyer to walk away if it cannot obtain financing) is a significant red flag for sellers and will typically result in the bid being discounted or rejected in a competitive process. If the buyer needs financing flexibility, use a reverse break fee structure rather than a financing condition.
Overly broad MAC definitions: A MAC condition without appropriate carve-outs gives the buyer an excessively broad walk-away right. At minimum, carve out general economic conditions, industry-wide changes, changes in law, and the effects of the transaction announcement itself. Post-COVID, pandemic and public health carve-outs have become standard.
Failure to address the gap between signing and closing: Conditions precedent only protect parties at closing. If the gap between signing and closing is significant (months or longer), the parties need interim operating covenants, information rights, and cooperation obligations to manage the business during the interim period. Conditions without supporting covenants are hollow.
Conflating "satisfaction" and "waiver": A condition that has been waived is not the same as a condition that has been satisfied. If a buyer waives a condition (e.g., the accuracy of a specific representation), it should not be deemed to have waived its indemnification rights for losses arising from the inaccuracy. Draft the waiver provision to preserve indemnification rights unless expressly released.
Ignoring the burden of proof: If a dispute arises over whether a condition has been satisfied, which party bears the burden of proof? Generally, the party seeking to enforce the condition (i.e., the party refusing to close) bears the burden of showing the condition was not met. But this default can be altered by contract, and parties should consider whether to address the burden explicitly.
Circular conditions: Avoid conditions that create circularity, such as making the buyer's obligation to close conditional on the seller's delivery of a document that the seller cannot produce until the buyer has performed its own pre-closing obligations. Map out the sequence of condition satisfaction and ensure each condition can be satisfied independently or in a logical order.

‍

Jurisdiction Notes

United States: The law of conditions precedent is well-established across US jurisdictions, with Delaware providing the most developed body of case law in the M&A context. The Delaware Court of Chancery's decision in Hexion v. Huntsman (2008) remains a landmark, holding that a buyer cannot invoke a MAC condition based on the target's failure to meet internal projections alone; the buyer must demonstrate a material adverse effect on the target's long-term earnings power. The Restatement (Second) of Contracts, Sections 224-229, provides the general framework for conditions, including the distinction between express and constructive conditions, the doctrine of substantial performance, and the court's power to excuse a condition to avoid forfeiture. For regulatory conditions, the HSR Act (Hart-Scott-Rodino Antitrust Improvements Act) governs pre-merger notification requirements, and CFIUS (Committee on Foreign Investment in the United States) review applies to transactions involving foreign acquirers of US businesses with national security implications.

United Kingdom: English law distinguishes between conditions precedent (which suspend the obligation to perform) and conditions subsequent (which terminate an existing obligation). The distinction has practical consequences for the burden of proof and the availability of specific performance. Under English law, the implied duty of good faith in the performance of conditions precedent is narrower than under Delaware law, and parties must typically rely on express contractual language to impose effort obligations. For regulatory conditions in UK M&A, the Competition and Markets Authority (CMA) has expanded its review powers under the National Security and Investment Act 2021, creating a mandatory notification regime for transactions in 17 sensitive sectors. The CMA's review timelines have lengthened, making outside date negotiations more complex in UK deals.

Other Jurisdictions: In civil law jurisdictions such as Germany and France, conditions precedent (aufschiebende Bedingungen in German; conditions suspensives in French) are codified in the civil code and subject to statutory requirements. Under German law (BGB Section 158), a condition precedent suspends the legal effect of the contract until the condition is satisfied, and the parties have a statutory duty to act in good faith regarding the fulfillment of the condition (BGB Section 162, which deems a condition fulfilled if the party whose obligation is conditional prevents its satisfaction in bad faith). French law (Code Civil Article 1304) similarly provides that a condition is deemed fulfilled if the party who had an interest in its failure has prevented its satisfaction. In cross-border M&A, multi-jurisdictional regulatory conditions (EU merger control, foreign investment screening in multiple countries) can create significant complexity, and the outside date must accommodate the longest anticipated regulatory timeline.

‍

Related Clauses

Material Adverse Change -- The MAC condition is one of the most significant and heavily negotiated conditions precedent in M&A transactions, providing the buyer with protection against a material deterioration in the target's business between signing and closing.
Representations and Warranties -- The bring-down of representations to the closing date is a standard condition precedent; the accuracy standard and materiality scrape determine the threshold for the buyer's walk-away right.
Termination Fee -- Break-up fees and reverse break fees are triggered by the failure of conditions precedent, allocating the economic risk of a failed closing between the parties.
Best Efforts -- The effort standard applicable to a party's obligation to cause satisfaction of conditions precedent, ranging from "reasonable efforts" to "hell or high water" commitments.
Waiver -- The mechanism by which a party relinquishes its right to insist on satisfaction of a condition precedent, allowing the transaction to close despite the condition's non-fulfillment.
Change of Control -- Third-party consent requirements triggered by a change of control are a common condition precedent in acquisition agreements involving targets with material customer or vendor contracts.

‍

This glossary entry is provided for informational purposes only and does not constitute legal advice. Conditions precedent involve complex interactions among corporate, regulatory, and contract law, and their proper drafting requires an understanding of the specific transaction structure, applicable regulatory regimes, and governing law. Consult qualified transactional counsel in the relevant jurisdiction before drafting or negotiating conditions precedent in any agreement.