Condition Precedent
A contractual term whose satisfaction is required before the contract becomes legally binding on the parties, making the contract 'conditional' until that event occurs; distinct from obligations the parties must perform under an already-binding contract before it completes.
Independent editorial summary — not the official statute text. Read the official version on legislation.gov.uk.
HMRC's Capital Gains Manual, addressing when a contract for the disposal of an asset takes effect for tax purposes, sets out the underlying contract-law concept: 'A contract will be ‘conditional’ where there is a condition precedent, see Eastham v Leigh London & Provincial Properties Ltd [1971] and Lyon v Pettigrew [1985]. This is a question of contract law, rather than tax law.' The manual goes on to state the test applied under the law of England and Wales: 'Under the law of England and Wales, broadly, there will be a condition precedent in a situation where the contract is only legally binding on the parties once that condition is fulfilled.'
The manual draws a further distinction that matters in practice: a condition precedent, which determines whether the contract is binding at all, is 'different from obligations that the parties need to fulfil in accordance with the contract, before it completes (sometimes called ‘conditions subsequent’).' On this analysis, a condition precedent goes to the formation and enforceability of the contract itself, whereas obligations to be performed before completion of an already-binding contract are a separate category of contractual term, even though both may loosely be described as 'conditions' in commercial usage.
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Official sources
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