Insight
Condition Precedent Explained
18 September 2026
In short
A condition precedent is an event that must occur before a contract becomes binding, or before a particular obligation under it must be performed. Finance approval, landlord consent, FIRB clearance and a third party's signature are common examples. If the condition is not satisfied by the stated date, the contract should say who can walk away and what happens to the deposit.
The two kinds you will meet
Australian courts distinguish between a condition precedent to the formation of a contract and a condition precedent to the performance of an obligation. In the first, there is no binding contract at all until the event occurs. In the second, the contract exists and binds the parties, but a specific obligation — settlement, payment, delivery — is suspended until the condition is met.
The difference decides whether a party can withdraw freely, whether obligations of good faith and cooperation apply in the meantime, and whether a deposit is refundable. Contracts frequently fail to make clear which one is intended.
Common examples in commercial deals
- Finance. Completion conditional on the buyer obtaining finance on acceptable terms by a date. "Acceptable" needs definition or it becomes a free option to exit.
- Landlord consent. In a business sale where the lease is central, settlement is conditional on assignment or a new lease being granted.
- Due diligence. The buyer may terminate if not satisfied with its investigations by a date. See due diligence when buying a business.
- Third-party and regulatory approvals. FIRB, ACCC, a licensing authority, a franchisor's consent, a financier's release of security.
- Key contracts and people. Consent from a major customer, or key staff signing new employment agreements.
- Security release. Discharge of a PPSR registration over the assets being sold.
What a well-drafted condition says
- The event, defined precisely enough that both sides can tell whether it has happened.
- Who must pursue it, and to what standard of effort.
- A date, with a mechanism for extension by written agreement.
- Notice — how satisfaction or failure is communicated, and to whom.
- Consequences — who may terminate, whether termination is the only remedy, and what happens to the deposit, costs and any interim access.
- Waiver — whose benefit the condition is for and how it can be waived.
Where these clauses go wrong
Three recurring failures. The condition is drafted subjectively ("finance satisfactory to the buyer") so it operates as an unlimited exit right. No date is fixed, so the deal hangs indefinitely and the seller cannot deal with anyone else. Or the consequences are unstated, so when the approval does not arrive the parties dispute whether the contract is void, terminable or still on foot — and the deposit sits in trust while costs accrue.
A party required to pursue a condition also cannot deliberately frustrate it. Courts will imply an obligation to cooperate and not to prevent satisfaction of the condition, but litigating that point is far more expensive than drafting the clause properly.
When to involve a lawyer
- You are signing a sale, lease or supply contract conditional on finance, consent or approval.
- A condition date is approaching and you are not sure whether you can terminate or must extend.
- The other side says the contract never came into existence.
- A deposit is at stake and the clause is ambiguous.
Frequently asked questions
What is a condition precedent in simple terms?
It is an 'only if' clause. Something must happen — finance approval, a landlord's consent, a regulatory tick, a third-party signature — before the deal, or a particular obligation under it, takes effect. Until it happens, the obligation is suspended.
What is the difference between a condition precedent and a condition subsequent?
A condition precedent must be satisfied before an obligation starts. A condition subsequent is an event that, if it occurs later, brings an existing obligation to an end. The drafting and the commercial risk are quite different, so the label in the clause matters less than how it actually operates.
What happens if a condition precedent is not satisfied?
It depends on the clause. Well-drafted contracts say who may terminate, by when, whether the deposit is refunded, and whether the date can be extended by agreement. Where the contract is silent, the parties are often left arguing about whether the whole contract failed or only one obligation was suspended.
Who has to satisfy the condition?
Whoever the clause allocates it to — and it should say so expressly, together with the standard of effort required (reasonable endeavours, best endeavours, or an absolute obligation). A party that is meant to pursue a condition cannot sit on its hands and then rely on the failure to escape the deal.
Can a condition precedent be waived?
Usually yes, if it exists for the benefit of one party and the contract permits waiver. Waiver should be in writing and clearly identify what is being given up. Conditions imposed by law or by a regulator generally cannot be waived between the parties.
Two ways to start
Get a fixed fee before any work starts.
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Have the clause checked before you sign
We'll review the conditions, dates and exit rights in your contract for a fee agreed upfront.
Know what you need? Request a fixed-fee quote and upload your documents. Not sure of scope? Book a short call with a senior lawyer instead.