What happens if a condition in a business purchase is not satisfied?

A closing condition is something that must happen before a party has to close. If one is not met, the purchase agreement is the first place to look, because it sets out what each side may then do. BDC describes closing conditions as undertakings the vendor agrees to complete between signing and closing, such as third-party consents, regulatory approvals or remedial steps flagged in due diligence.

What the agreement should answer

Read the clause and the termination section together for these points.

• Which party is the condition for, and can that party waive it in writing?
• Is there a date by which it must be met, and can that date be extended?
• Must either side make efforts to satisfy it?
• Does a failed condition let a party end the agreement, and what happens to the deposit if so?

If the agreement is silent on any of these, a lawyer should say what the silence means before anyone gives notice. A conditional offer raises the same questions at an earlier stage.

What Quebec’s Civil Code adds

The Civil Code of Québec calls an obligation conditional where it depends on a future and uncertain event (art. 1497). If no time has been fixed, the condition may be fulfilled at any time, but it fails if it becomes certain it will not be fulfilled (art. 1501). A conditional obligation becomes absolute when the debtor whose obligation is subject to the condition prevents it from being fulfilled (art. 1503). Other provinces apply their own law, so a party that suspects the other is blocking a condition should ask a lawyer in the governing province how a court there would see it.

When a statute sets the condition

Some conditions are more than contract terms. Under the federal Competition Act, the parties to a transaction that meets the Act’s notification tests must notify the Commissioner before completing it (s. 114(1)). The transaction shall not be completed before the waiting period in s. 123(1) ends, unless the Commissioner gives the notice described in s. 123(2). On the Commissioner’s application, if a court determines that a person, without good and sufficient cause (which that person must prove), has completed or is likely to complete the transaction early or without the required notice, s. 123.1 lets it make orders, including a penalty. Alberta’s Workers’ Compensation Board says a buyer has a responsibility to get a clearance when buying a business, its stock or equipment, so a missing clearance may be more than a drafting point. The closing condition entry explains the term further.