Conditions Precedent in Ontario Contracts: What Happens When One Isn’t Met

A home purchase "conditional on financing." A business sale "conditional on landlord consent to assign the lease." A supply agreement that only takes effect "subject to regulatory approval." All three are built around the same mechanism — a condition precedent — and all three raise the same question when the condition doesn’t come through: is the deal off, or is someone still on the hook?

What a Condition Precedent Is

A condition precedent is an event that must happen before a contractual obligation becomes due — or, in some cases, before the contract itself takes effect at all. Until the triggering event occurs (or is waived), the parties generally aren’t required to perform the obligation the condition attaches to.

This is different from an ordinary contractual promise (a "covenant"). A covenant is something a party has agreed to do; a condition precedent is something that has to happen — which might be entirely outside either party’s control — before an obligation kicks in.

Common Examples

• Financing conditions in real estate agreements — the buyer’s obligation to close is conditional on securing an acceptable mortgage
• Due diligence and inspection conditions — a purchaser’s obligation to close a deal depends on being satisfied with what an inspection or review turns up
• Regulatory or third-party approval — a transaction only proceeds if a government body, landlord, lender, or other third party consents
• Condominium status certificate review — common in Ontario condo purchases, where the buyer’s obligation depends on being satisfied with the certificate’s contents

What Happens If the Condition Is Never Met

The consequence depends entirely on how the condition is worded and who it’s meant to protect, but the general patterns are:

1. The contract is discharged. If the condition simply isn’t met and neither party is at fault, the obligation it attaches to (often the whole contract) typically doesn’t come into force — and any deposit is usually meant to be returned, subject to the contract’s exact terms.
2. The condition is waived. A condition inserted for the benefit of one party can often be waived by that party, allowing the deal to proceed as though the condition were satisfied — but only if the contract allows waiver and the waiving party follows any required process (often written notice by a deadline).
3. A dispute arises over whether it was genuinely unmet. This is where litigation tends to happen — one side says the condition simply wasn’t satisfied; the other says it was manufactured, or that the first side didn’t make reasonable efforts to satisfy it.

The Duty to Make Reasonable Efforts

A recurring source of disputes: a party who benefits from a condition generally can’t sit back and do nothing, then claim the condition failed. Depending on the contract’s wording, there’s often an expectation that the party takes reasonable steps to try to satisfy the condition — actually applying for financing, genuinely pursuing the regulatory approval, and so on — rather than using the condition as a convenient way out of a deal they’ve simply changed their mind about.

Whether that duty exists, and how far it goes, depends heavily on the specific contract language and the surrounding facts. This is a frequent flashpoint in real estate deals that fall through on a financing condition close to the deadline.

Drafting and Reviewing Conditions Precedent — What to Watch For

• Whose benefit is it for? A condition drafted for one party’s exclusive benefit is generally waivable by that party alone; a mutual condition may need both parties to agree to waive it.
• Is there a clear deadline? Vague or open-ended conditions invite disputes about whether they’ve lapsed.
• What’s the notice mechanism? Many conditions require written notice of satisfaction, waiver, or non-fulfillment by a specific date — missing that mechanic can have real consequences.
• What happens to deposits or performance already given? The contract should say what’s returned, retained, or forfeited if the condition fails.

Frequently asked questions