Waiver of conditions precedent: Overview, definition, and example
What is a waiver of conditions precedent?
A waiver of conditions precedent refers to the voluntary relinquishment or abandonment of a condition or requirement that must be fulfilled before a contractual obligation becomes effective or a transaction proceeds. In many agreements, there are conditions precedent—certain events or actions that must occur before a party’s duties or obligations are triggered. A waiver of these conditions occurs when the parties involved mutually agree to proceed with the agreement or transaction despite not meeting these conditions. By waiving conditions precedent, the parties waive their right to enforce these conditions, allowing the contract or agreement to move forward.
Why is a waiver of conditions precedent important?
A waiver of conditions precedent is important because it provides flexibility and allows the parties to proceed with an agreement even if some specified conditions have not been met. This can be especially useful in situations where fulfilling a condition is impractical or unnecessary. For instance, in a business transaction, one party might agree to waive the completion of a due diligence process (if it is no longer deemed necessary) to expedite the deal. A waiver can help avoid delays and ensure that a transaction or agreement is not stalled due to unmet conditions. However, it also means that parties may relinquish certain protections that were originally built into the contract to safeguard their interests.
Understanding waiver of conditions precedent through an example
For example, in a merger agreement, the completion of due diligence might be a condition precedent for closing the deal. However, if the parties decide they are comfortable with the risks, they may agree to waive this condition and proceed with the merger without further investigation. This would allow the transaction to move forward even if some elements of the due diligence process were not completed.
In another example, a real estate sale agreement might include a condition precedent that the buyer must secure financing before the sale can close. If the buyer is unable to secure financing but the seller is still willing to proceed with the sale, the buyer and seller could mutually agree to waive the financing condition and complete the transaction without this condition being met.
An example of a waiver of conditions precedent clause
Here’s how a waiver of conditions precedent clause might appear in a contract:
“Notwithstanding the conditions precedent outlined in Section 4 of this Agreement, the Parties agree that [Condition X] shall be waived, and the Agreement shall proceed to closing as if the condition had been satisfied. This waiver does not affect the Parties' other rights or obligations under this Agreement.”
Conclusion
A waiver of conditions precedent allows the parties to move forward with a contract or transaction despite not meeting one or more of the conditions that were originally required. This flexibility can be crucial for keeping deals on track and avoiding delays, but it also means that the parties may forgo certain protections or conditions that were initially intended to ensure the transaction proceeds under favorable circumstances. As with any waiver, it is important for the parties to carefully consider the implications before agreeing to waive conditions, as it can affect their rights and obligations in the future.
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.