What is Conditions Precedent?
Conditions Precedent (CPs), also called Closing Conditions, are specific events or circumstances that must occur (or specific facts that must be true) before a party is obligated to consummate a transaction. CPs allocate the risk of various pre-closing events:if a CP is not satisfied, the relevant party generally has the right to walk away from the deal without breach.
Categories of Conditions Precedent
M&A CPs typically fall into categories: regulatory CPs (antitrust clearance:HSR in US, EC merger clearance, sectoral approvals; foreign investment review:CFIUS, EU member state FDI screening, Turkish foreign capital authorities), third-party consents (key customer contract change-of-control approvals, lender consents, license assignments), bring-down conditions (accuracy of representations at closing, compliance with covenants), MAC condition (no MAC since signing), corporate approvals (shareholder vote for public company targets, board approvals), and deal-specific conditions (financing condition for buyer, debt refinancing, specific contracts being signed).
CPs vs. Conditions Subsequent
Conditions Precedent must be satisfied before closing:if not satisfied, closing doesn’t occur. Conditions Subsequent are obligations that must be satisfied after closing:if not satisfied, the deal can be unwound or the party faces other consequences. Most M&A agreements use Conditions Precedent extensively but rarely use Conditions Subsequent, preferring instead to handle post-closing obligations through covenants and indemnification provisions.
CP Drafting and Satisfaction
Well-drafted CPs include: specific, objective tests for satisfaction (avoiding subjective judgment), reasonable efforts obligations on each party to facilitate CP satisfaction, mutual or unilateral nature (which party can waive), outside date (longstop date) by which CPs must be satisfied or the deal can be terminated, and specific remedies and termination rights if CPs aren’t satisfied. Common drafting pitfalls include vague CP language, missing reasonable efforts obligations creating gameability, no provision for partial CP satisfaction or extension, and unclear escalation paths when CPs face delays. Turkish M&A deals routinely include CPs around Competition Authority clearance and sector-specific regulatory approvals (BDDK, SPK, Enerji Piyasası Düzenleme Kurumu).
References
- Turkish Law No. 6698 on the Protection of Personal Data (KVKK)
- Personal Data Protection Authority of Türkiye
- Turkish Capital Markets Law No. 6362
- Turkish Capital Markets Board (SPK)
- Turkish Banking Regulation and Supervision Agency (BDDK)
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