A condition precedent is an event or action that must take place before an agreement or right becomes effective. It is to be distinguished from a condition subsequent, which is an event or action that must take place after an agreement or right becomes effective, failing which the agreement may be terminated or the right withdrawn.
Conditions precedent are commonly inserted in sale and purchase agreements, and completion of the transaction (ie the time at which the buyer pays for the shares or assets and the seller delivers the shares or assets to the buyer) is usually subject to the satisfaction of certain conditions precedent. If the conditions are not fulfilled, the buyer can choose not to go ahead with the deal or waive a particular condition (=voluntarily give up its right to demand that the condition be fulfilled). Common examples of conditions precedent include: approval of the transaction by the shareholders of the seller and approval of the transaction by competition authorities. These events are of crucial importance to the buyer because if these approvals are not granted, the sale will not be able to go ahead.
Conditions precedent are also commonly used in other legal situations. In the context of a loan, the loan agreement will usually list certain conditions precedent which must be met before the borrower can have access to the money. In a sale of property, the ownership of the property can only pass to the buyer once certain conditions have been met.