Second closing: Overview, definition, and example
What is a second closing?
A second closing refers to an additional or follow-up closing event in a transaction, often related to real estate or business deals, where the final sale or transfer of assets is completed in stages. The first closing typically involves an initial exchange of funds or ownership, while the second closing may occur later to finalize the remaining aspects of the deal. It often happens when certain conditions or contingencies outlined in the original agreement have not been met at the time of the first closing.
For example, in a real estate deal, the buyer may close on the purchase of a property in stages—first acquiring the land, and later closing on additional improvements, such as buildings or infrastructure.
Why is a second closing important?
A second closing is important because it allows for the completion of a transaction when certain conditions or contingencies cannot be met initially. It helps ensure that both parties fulfill their obligations before the deal is fully finalized. For businesses and investors, a second closing provides flexibility to close deals in stages, while also offering time to meet specific regulatory approvals, funding requirements, or other conditions that were not available at the time of the first closing.
In real estate or complex business deals, a second closing can provide the necessary time for due diligence or completing financial arrangements that are essential for the transaction to go through smoothly.
Understanding second closing through an example
Imagine a company, XYZ Corp., is purchasing another business, ABC Inc. The first closing involves the transfer of ABC Inc.’s assets, but the second closing is scheduled to occur six months later to finalize the transfer of shares, after XYZ Corp. has secured additional financing or met certain regulatory requirements. The second closing allows for the transaction to be completed in two parts, ensuring that both sides are fully prepared for the deal.
In a real estate example, a developer might purchase a plot of land in the first closing, but agree to a second closing when certain development milestones are reached, such as the completion of construction or the acquisition of necessary permits.
An example of a second closing clause
Here’s how a clause like this might appear in a contract:
“The Parties agree to a second closing to finalize the transaction, to occur no later than [insert date], contingent upon the completion of all conditions set forth in this Agreement, including [insert specific conditions].”
Conclusion
A second closing is a staged approach to completing a transaction, often used in real estate or business deals where certain conditions must be fulfilled before the deal is fully finalized. It provides flexibility for both parties to ensure that all requirements are met, while still moving forward with the transaction. For businesses, understanding and structuring second closings can be an essential tool in successfully completing complex deals.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.