A contingent contract is an agreement in which at least one party's obligation to perform only starts, or only continues, once a specified event happens or fails to happen. The plain-English version is "we have a deal, provided X occurs by Y date": a business sale that settles only if the buyer gets finance approval, a supply arrangement that begins only when a licence is granted, or a fit-out job that can be ended if council rejects the development application.
This guide explains the two kinds of condition that make a contract contingent, how a contingent contract fits with the ordinary rules of contract formation, and what happens in practice through a worked example of a small business purchase. It then covers the misconceptions that cause the most trouble, the consumer law risks around one-sided conditions, and the points at which a commercial lawyer earns their fee.
The two conditions that make a contract contingent
Condition precedent
An event that must occur before the obligation to perform arises. Until the event happens, neither party has to complete their side, but the contract itself is already on foot. A business sale conditional on finance approval is the classic example: the buyer is not obliged to hand over the purchase price until the lender's approval arrives, and the seller is not obliged to transfer the business before that point.
Condition subsequent
An event that, if it occurs after performance has begun, brings the obligations to an end. A supply agreement that terminates if a permit is revoked, or a lease that ends if the council refuses approval for the proposed use, is a condition subsequent in operation. The parties perform normally until the event happens, and from that point the contract unwinds according to its own terms.
The crucial point under Australian law is that both types leave the contract binding from the moment it is signed. In Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, the High Court recognised that a condition precedent ordinarily attaches to the obligation to perform, not to the formation of the contract itself. The same principle was applied in Sandra Investments Pty Ltd v Booth [1983] HCA 46, where a purchaser of land waived the benefit of a condition requiring council approval for a subdivision and was held entitled to compel completion. The failure of the condition went to whether completion had to happen, not to whether the contract existed in the first place.
Because a condition usually exists for the benefit of one party, that party can waive it and proceed regardless. In Sandra Investments, the purchaser's written waiver made the contract unconditional, and the vendor's refusal to complete was a breach. Drafting should make clear who benefits from each condition, because that determines who holds the right to waive it.
How conditions interact with the basics of contract formation
A contingent contract is still a contract. It needs offer, acceptance, consideration, intention to be legally bound, and certainty of terms. The condition does not replace any of these elements; it qualifies when the obligations arise. A deal that is "subject to a contract to be agreed later" is an agreement to agree, not a contingent contract, and is generally unenforceable because the essential terms are not yet certain.
Certainty is where many contingent arrangements come unstuck. A condition written so vaguely that it cannot be given a definite meaning risks taking the whole contract down with it. But the threshold is forgiving: in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, quoted with approval in Meehan v Jones [1982] HCA 52, the High Court held that a contract capable of a meaning is not void for uncertainty. The question is whether the condition can be given a definite meaning, not whether it is elegantly drafted.
There is a second, sharper limit: the condition must not leave a party's obligations themselves optional. Where words that look like a promise are accompanied by a discretion as to whether the promisor will carry it out, there is no contract at all. That principle, stated by Kitto J in Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 and applied in Meehan, draws the line between a legitimate condition and an illusory promise. A discretion over whether a condition is satisfied is fine. A discretion over whether to perform the promised obligations is not, and a court will not enforce it.
A worked example: buying a packaging business
Suppose you are buying a packaging business for $900,000. You sign the sale agreement and pay a $50,000 deposit into the seller's solicitor's trust account. The agreement makes completion conditional on three things: finance approval for a loan of at least $700,000 from an Australian bank on terms acceptable to you, transfer of the business's food-handling licence, and satisfactory due diligence on the financial records, all by a drop-dead date 60 days after signing.
From the moment of signing, both parties are bound. The seller cannot on-sell the business to someone else, and you cannot walk away without consequences. The conditions govern when completion must happen, not whether the agreement exists. If the seller starts negotiating with another buyer, you have rights immediately, before any of the conditions are met.
The finance condition shows how the law treats subjective satisfaction. In Meehan v Jones, the High Court held that a "subject to finance" condition leaves it to the purchaser's own honest judgment whether the terms on offer are satisfactory. The buyer can decline finance that does not suit their needs, but the discretion must be exercised honestly. A buyer who refuses suitable finance without reason, or who never applies, risks being treated as having prevented the condition's fulfilment or as having waived it. The High Court also confirmed in Meehan that such a condition is not illusory, because the discretion relates to fulfilment of a condition rather than to performance of the contractual obligations themselves.
If the licence cannot be transferred by the drop-dead date, the agreement ends. Whether your deposit comes back in full, whether costs are shared, and whether either party can sue then depend entirely on the drafting of the failure clause, which is why the fallback terms matter as much as the conditions themselves.
Misconceptions about contingent contracts
The misconceptions that cause the most trouble in practice are:
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"It is not a real contract until the condition is met": Wrong. The contract is binding from formation; the condition attaches to performance, not existence (Perri, applied in Sandra Investments). From day one you can enforce the other side's obligations such as confidentiality and deposit handling, and you can act against a party who tries to sabotage the condition.
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"Subject to finance gives the buyer a free exit": Wrong. The buyer must assess offered finance honestly and cannot act capriciously (Meehan). A party who prevents a condition from being fulfilled cannot rely on its non-fulfilment.
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"We can leave the condition vague and sort it out later": Risky. A condition with no definite meaning may make the contract void for uncertainty (Upper Hunter), and if the drafting reserves a discretion over the obligations themselves, the deal may be illusory (Placer Development).
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"Conditions only ever protect the buyer": They can be drafted for either party. A condition subsequent can give both sides an exit if regulation changes, and the party for whose benefit a condition exists is the party who can waive it. The other side's protection lies in the fallback clauses.
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"A one-sided condition is fine if the other party signs it": Not always. Under the Australian Consumer Law (ACL), which is Schedule 2 of the Competition and Consumer Act 2010 (Cth), an unfair term in a standard form consumer or small business contract is void: s 23. Since the 2023 amendments, proposing an unfair term, or applying or relying on one, is also a contravention attracting pecuniary penalties under s 224. A term is unfair if it causes a significant imbalance in the parties' rights, is not reasonably necessary to protect the legitimate interests of the party advantaged by it, and would cause detriment (s 24). The small business protection applies where a party employs fewer than 100 people or has turnover below $10 million (s 23(4)), so most of the businesses reading this are covered. A condition that gives one party a sweeping power to end the deal or withhold payment, buried in a standard form agreement, is exactly the kind of term regulators and courts scrutinise.
Where a commercial lawyer earns their fee
A lawyer's job in a contingent arrangement is to convert a commercial hope into a term a court can apply. Concretely, that means: choosing between a condition precedent and a condition subsequent for each dependency; drafting the trigger objectively by reference to documents, approvals or certificates rather than bare feelings; identifying whose benefit each condition serves and building in a written waiver mechanism; allocating responsibility for chasing finance or licences, with express reasonable or best endeavours duties; and drafting the failure consequences, including refunds, cost sharing and termination without fault.
Two points are worth stating expressly because the case law leaves gaps. First, in Meehan the High Court declined to imply a term that a purchaser use reasonable efforts to obtain finance, so if you want a duty to pursue finance or approvals, it must be written into the contract. Second, the way conditions are presented can itself create consumer law exposure: misrepresenting what a condition means, or using a vague condition to avoid a clear promise, may be misleading or deceptive conduct in trade or commerce under s 18 of the ACL. A practitioner will check that conditions are transparent, proportionate and balanced, and that deposits are protected in trust or escrow during the conditional period.
The question to answer before you sign
The losses in contingent arrangements cluster around one misunderstanding: treating the contract as if it is not yet binding. That assumption leads parties to ignore the deal while waiting on conditions, only to discover the agreement was enforceable all along, or the reverse, that it was never enforceable because the condition was illusory. Before you sign, be able to answer this in one sentence: what must happen, by when, who is responsible for making it happen, and what occurs if it does not. If you cannot answer that sentence, the condition is not ready to sign, and a lawyer should redraft it while the deal is still being negotiated, when there is time to fix it.