What Does “Closing Conditions” Mean in a Contract?
Requirements that must be satisfied before a transaction can be completed, allowing parties to back out if conditions aren't met.
Detailed Explanation
Closing conditions (or conditions precedent) are gates that must be passed before a deal closes. Common conditions include accuracy of representations, completion of due diligence, regulatory approvals, no material adverse change, and third-party consents.
If conditions aren't satisfied, the parties may have the right to terminate without closing. Conditions protect against closing into a different deal than was negotiated.
Example in a Contract
“Buyer's obligation to close is subject to: (i) accuracy of Seller's representations as of closing, (ii) receipt of all required regulatory approvals, (iii) no Material Adverse Effect having occurred, and (iv) completion of financing on terms acceptable to Buyer.”
Why It Matters
Closing conditions determine whether you can walk away without completing the deal. As a buyer, robust conditions protect you. As a seller, excessive conditions create closing uncertainty.
Related Terms
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