Condition precedent – what, why, when ?

Definition A condition that must be fulfilled before a second event can take place – “Precedent” means that it must come first or before some other act before a Contract can be fulfilled and both parties are required to fully comply with their obligations. Condition precedents usually apply in business contracts but the legal principle

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Definition

A condition that must be fulfilled before a second event can take place – “Precedent” means that it must come first or before some other act before a Contract can be fulfilled and both parties are required to fully comply with their obligations.

Condition precedents usually apply in business contracts but the legal principle can also apply outside of contracts, such as in wills (see below).

A condition precedent can also relate, in a contract situation, to situations involving an act or event relating to a 3rd party or situation outside of a party’s control. An example of this would be agreeing to buy land contingent on obtaining Planning Permission from the local Council, so getting that consent is the condition precedent before the buyer is required to complete the purchase.

When does a condition precedent apply ?

Most contracts do not include conditions precedent and in most cases, if the condition is to apply, it must be made clear.

A practical example of a condition precedent relates to insurance contracts. There is a duty on the insured to reveal material information to the insurer to enable the insurer to decide whether to insure. If the insured lies or withholds important information, the insurer may not be liable to pay out a claim based on it being a condition precedent that the insurer has made full disclosure.

Condition precedents are also common in building contracts, large and small. Very often a building contract will provide for stage payments i.e. when the Builder has reached a certain part of the construction, he is entitled to be paid a percentage of his money – that is a condition precedent that he will only be paid when that stage has been suitably completed, usually certified by an Architect.

In other consumer situations, it is not generally a condition precedent that an article is fit for it’s purpose as there is separate legislation to cover this situation but if you buy something and make it very clear that it has to be delivered by a certain date and/or in a certain condition this could be the case.

In summary, in a situation where something needs to happen which is outside of your direct control or where performance by the other party to the contract is critical to make the contract workable for you, you may need to ensure the contract includes suitable condition precedent terms and given the importance of such terms, this is an area where an experienced lawyer should be used to draft the clauses.

Condition precedent in a will

 Very often a will says that for a certain person to inherit part or the whole of an Estate, they must do something – such as getting married, reaching a certain age or fulfill some other condition.

commercial law • David Swede

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