Precedent vs Subsequent – The Contractual Conditions that Could Make or Break Your Deal

Introduction

When entering into a contract, every clause and condition significantly impacts the rights and obligations of the parties involved. However, the most critical but often misunderstood are the conditions precedent and the conditions subsequent.

Understanding the difference between these two types of conditions is crucial to understanding your rights and obligations under the contract, specifically its completion and its enforcement.

This article will explore the distinct roles that these conditions play and why they matter.

Conditions Precedent

A condition precedent in a contract is a specific requirement that must be satisfied and fulfilled before any contract or agreement becomes effective and binding, obligating a party to perform their contractual obligations. Until this condition precedent is met, even if the contract is signed, either party can choose to withdraw from the contract at their discretion without penalty.

Since the contract is not yet binding, the failure to meet a condition precedent is not a breach of contract, and there is no remedy other than to withdraw from the contract.

A common example is in a sale of business contract, where a condition precedent might require the landlord’s consent to assign a lease to the purchaser. In this case, the contract remains non-binding, and the sale will not proceed until the landlord consents to the assignment, giving the purchaser certainty over the business they intend to acquire.

Conditions Subsequent

In comparison to a condition precedent, a condition subsequent operates once a contract has become legally binding and in effect. It is a condition that stipulates an event or specific circumstance that, if it occurs, can terminate the contract or excuse a party from fulfilling their remaining obligations under the contract.

In most cases, if a condition subsequent occurs, one or both parties may be released from their contractual duties bringing the contract to an end.

An example of a condition subsequent includes a condition in an employment contract that requires an employee to maintain a certain professional license or certification during their employment. If the employee fails to maintain or loses this license or certification, this can lead to the end of the employment contract.

Why Are They Important?

Conditions precedent and subsequent play a crucial role in contracts. These conditions are responsible for defining the specific events that can either trigger or terminate parties’ contractual obligations under a contract.

The benefit of these conditions is that they can provide clarity, certainty, protection and flexibility in contractual relationships.

Conditions precedent outline clearly what must happen before a contract becomes enforceable and conditions subsequent provide clear circumstances under which the contract may be terminated. Each of these help parties manage their risk and expectations throughout the contract.

As to managing these risks, conditions precedent can help parties protect themselves from being bound to a contract until certain events, like securing finance, occur and conditions subsequent can allow parties to exit a contract if an unforeseen event occurs.

Both of these types of conditions serve to protect the interests of each party and provide structure to their contractual relationship.

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