What condition precedent means
A condition precedent is a gate. Nothing on the other side of it happens until it is opened.
Parties often want to agree a deal now while something outside their control is still pending: a regulatory approval, a landlord's consent, a bank's sanction, a due diligence exercise, a third party release. Rather than wait, they sign, and make completion conditional on those things happening.
So the contract exists and binds the parties to the process, but the substantive obligations, transferring the shares, drawing down the loan, completing the purchase, only arise when the conditions are satisfied.
A condition subsequent is the mirror image. There the obligation exists immediately and comes to an end if a stated event occurs.
The distinction matters. With a condition precedent, nothing has happened yet. With a condition subsequent, something has happened and may be undone.
How it is used
Conditions precedent are standard in three kinds of transaction.
Share and asset sales. Regulatory approvals, third party consents, release of existing security, delivery of specified documents, and satisfactory completion of due diligence.
Loan facilities. The conditions to first drawdown are usually a long list: executed security documents, perfected charges registered at the CAC, corporate authorisations, legal opinions, evidence of insurance, and satisfactory searches. No drawdown until every item is delivered.
Property transactions. The Governor's consent, discharge of an existing mortgage, and delivery of title documents.
A well drafted clause does three things beyond listing the conditions. It says who is responsible for satisfying each one and to what standard, commonly best endeavours or reasonable endeavours. It sets a long stop date by which they must be satisfied. And it says what happens if they are not: the agreement terminates, or a party may waive the condition and proceed.
Waiver matters. A condition inserted for one party's benefit can usually be waived by that party, and the clause should say which conditions are waivable and by whom.
Key features
- An event that must occur before an obligation arises
- The contract exists and binds the process; the substantive obligations wait
- Common in share sales, loan facilities and property transactions
- Should allocate responsibility for satisfying each condition
- Should carry a long stop date and a stated consequence if missed
- Conditions for one party's benefit can usually be waived by that party
How this works in Nigeria
The Governor's consent is the archetypal Nigerian condition precedent in property, and it deserves careful treatment because it takes time.
A sale agreement making completion conditional on consent, with no long stop date and no allocation of who applies and who pays, leaves both parties in limbo. The buyer's money may already have moved. The seller has no incentive to chase. Months pass.
The drafting answer is specific: the seller applies within a stated number of days, the buyer funds the charges, both cooperate, and if consent is not obtained by a long stop date either party may terminate and the deposit is returned.
In lending, perfection of security is the usual condition to drawdown, and it is the step that most often delays a Nigerian facility. Registration of a charge at the CAC within the statutory period and, for land, consent and registration, all take time. Borrowers who assumed the money would arrive on signing discover the gap.
In share transactions involving regulated businesses, sector approvals are the condition, and the timetable is set by the regulator rather than by the parties.
In every case the practical advice is the same: name the responsible party, set the date, and say what happens when it passes.
Condition precedent vs warranty vs condition subsequent
Three contractual devices that are frequently confused.
A condition precedent must be satisfied before an obligation arises. Until then, nothing is due on either side beyond the process obligations.
A warranty is a statement of fact that a party promises is true. If it is untrue, the obligation still stands and the remedy is damages for breach of warranty. The deal completes; the price may be adjusted afterwards.
A condition subsequent brings an existing obligation to an end if a stated event occurs. The obligation was live and is extinguished.
In a share sale all three appear. Regulatory approval is a condition precedent. The seller's statements about the company are warranties. A provision terminating the agreement if a material adverse change occurs before completion operates as a condition subsequent.
Limits and risks
Conditions create delay and uncertainty. A transaction hanging on approvals nobody controls can drift, and commercial circumstances change while it does.
Without a long stop date it can drift indefinitely, and a party who wants out has no clean exit.
Allocation of responsibility is often vague. A clause requiring the parties to use reasonable endeavours, without saying who does what by when, produces arguments about whether anybody actually tried.
And a condition satisfied late may be worthless. A buyer whose funding lapsed while waiting for consent has satisfied the condition and lost the ability to complete.
Worth knowing
Always include a long stop date and say what happens when it passes. Nigerian property and share transactions drift for months on unsatisfied conditions with no end date, and by the time somebody wants out, money has moved and neither party has a clean exit.
Questions people ask
What is a condition precedent?
An event that must occur before a contractual obligation arises. The contract exists and binds the process, but the substantive obligations such as completion or drawdown wait until the condition is satisfied.
What is a long stop date?
The date by which conditions must be satisfied. If they are not, the clause states what happens, usually that either party may terminate. Without one a transaction can drift indefinitely.
Who is responsible for satisfying a condition?
Whoever the contract says, to the standard it sets, commonly best endeavours or reasonable endeavours. A clause that does not allocate responsibility produces arguments about whether anybody actually tried.
Can a condition precedent be waived?
A condition inserted for one party's benefit can usually be waived by that party. The clause should state which conditions are waivable and by whom, rather than leaving it to be argued.
What is the difference between a condition precedent and a warranty?
A condition precedent must be satisfied before the obligation arises. A warranty is a promise that a fact is true; if it is untrue the deal still completes and the remedy is damages.
Why do Nigerian property deals hang on conditions?
The Governor's consent is the usual condition and it takes time. Without a stated applicant, a funding allocation and a long stop date, the transaction can sit unresolved for months with money already moved.