How Contingent Contracts Work in Australia

If you’re running a startup or small business, you’ve probably had moments where you want to “lock something in” now, but only if something else happens later.

Maybe you’re negotiating a lease but you still need finance approval. Or you’re about to sign a supplier agreement, but only if you win a key tender. Or you’re acquiring a business asset, but only if a licence comes through.

This is where using a contingent (or conditional) contract can be incredibly useful. Used properly, it helps you move forward commercially while managing risk. Used poorly (or drafted vaguely), it can create uncertainty, disputes, and deals that get stuck in limbo.

Below, we’ll walk you through what people usually mean by a contingent contract in Australia, how it works in practice (often as a conditional contract with a condition precedent), what to watch out for, and how to draft contingency clauses that actually protect your business.

What Is A Contingent Contract?

In Australian business deals, people often use the term “contingent contract” to describe a contract that is conditional on a future event that is uncertain.

In plain English: it’s an agreement that says “we’ll do this if that happens”.

The “uncertain event” is called the contingency. Depending on how the clause is drafted, the contract might be formed straight away but key obligations won’t kick in until the condition is satisfied (this is commonly called a condition precedent). In other cases, the arrangement may give a party a right to terminate if the condition isn’t met by a certain time.

Why Small Businesses Use Contingent Contracts

For startups and SMEs, contingent (conditional) contracts often come up because you’re balancing growth with cashflow and risk. You may need to progress negotiations without committing to costs you can’t yet carry.

Common reasons you might use a contingent contract include:

• Reducing risk by making your obligations conditional on approvals, finance, or due diligence.
• Creating deal certainty so the other side can’t shop around while you’re waiting on the contingency.
• Managing timing when you can’t complete immediately (for example, because a regulator or lender needs time).
• Supporting investment or acquisition steps where multiple moving parts must line up.

How A Contingent Contract Is Different From A Standard Contract

In a standard contract, both parties generally have clear obligations from the moment the contract is formed (even if those obligations are to be performed later).

In a contingent (conditional) contract, one or more key obligations depend on an uncertain event. That changes practical issues like:

• when (or whether) you must perform;
• what happens if the event never occurs;
• whether either party can walk away;
• who carries costs while waiting;
• what “reasonable efforts” are required to make the event happen.

Common Examples Of Contingent Contracts For Startups And SMEs

There’s no single “contingent contract template” that fits every business. The structure depends on what you’re trying to achieve. But in practice, many contingent contract arrangements show up in the same recurring situations.

1. “Subject To Finance” Deals

You might agree to purchase equipment, an online business, or even enter a long-term lease, but only if finance is approved. If finance isn’t approved, you need a clear pathway to terminate without being in breach.

This often appears alongside broader risk management steps, including checking whether assets are already secured against someone else (for example, via a PPSR registration). If you’re buying valuable personal property (like equipment, vehicles, or business assets), a PPSR search can be part of smart due diligence.

2. “Subject To Due Diligence” In Business Purchases

If you’re buying a business or key assets, a contingent structure can allow you to proceed while you review the target’s financials, contracts, IP, and compliance history.

In many business acquisitions, it’s also important to understand whether there are security interests registered over the assets you’re buying. A PPSR check can help you assess whether a lender or supplier may have rights over the goods.

3. Conditional Leases (Or Leases Subject To Approvals)

Retail and commercial leases often need contingencies. For example:

• approval from the landlord for fit-out plans;
• council permits (such as food or signage approvals);
• assignment consent if you’re taking over an existing lease.

In these situations, it’s important to align the contingency clause with the broader lease terms so you’re not accidentally committed to rent before you can trade.

4. Supplier And Customer Agreements Tied To Milestones

Startups often build contracts around milestones. For example:

• a customer pays only after a pilot project is successful;
• a supplier starts production only after you confirm forecasts or deposit payments;
• a services agreement becomes ongoing only after a fixed “trial period”.

These can be legitimate contingent structures, but you’ll want to be careful about how you define “success”, “acceptance”, and who decides whether a milestone has been met.

5. Funding, Investment, And Growth Deals

It’s common for early-stage businesses to sign documents where obligations depend on events like:

• investor approval (or completion of a capital raise);
• board or shareholder approval;
• execution of related documents (like IP assignments or employment agreements).

If you have multiple founders, contingencies can also sit alongside governance documents like a Shareholders Agreement, which can help clarify decision-making and what approvals are required for major steps.

Key Legal Issues To Watch Out For In A Contingent Contract

A contingent contract is only as strong as the clause that creates the contingency. When disputes happen, it’s often because the contract didn’t clearly answer the “what if” questions.

Here are the big legal and commercial issues we see small businesses run into.

Is The Contingency Clearly Defined?

If the contingency is vague, you may end up arguing about whether it happened.

For example, phrases like these can create problems if they aren’t carefully defined:

• “subject to finance” (what amount? what interest rate? what lender?)
• “subject to board approval” (whose board? recorded how?)
• “subject to satisfactory due diligence” (satisfactory to whom? what documents?)
• “subject to regulatory approval” (which regulator? what approval?)

The more objective the criteria, the easier it is to manage and enforce.

Who Must Do What To Make The Event Happen?

Many contingencies require someone to take action, such as applying for finance, applying for a licence, providing documents, or negotiating third-party approvals.

A well-drafted contingent contract should state:

• which party is responsible for taking steps;
• what steps are required;
• the timeframe for those steps;
• what happens if the party doesn’t genuinely try.

This is where “reasonable endeavours” or “best endeavours” language is often used, but those terms can be misunderstood. It’s usually better to spell out the actual actions required rather than relying on broad labels.

What Is The Deadline For Satisfying The Condition?

If there’s no clear timeframe, the deal can drift. That’s bad for both sides: you’re in uncertainty, and the other side may feel stuck.

Consider including:

• a specific date the condition must be satisfied by;
• extension rights (and how extensions are agreed);
• what happens automatically if the condition isn’t satisfied by the deadline.

What Happens To Money Paid While Waiting?

If you pay a deposit before the condition is met, the contract should clearly say whether it’s refundable, when it becomes non-refundable, and what deductions (if any) may apply.

This is particularly important for small businesses trying to protect cashflow. You may also want to consider whether any “non-refundable deposit” language is enforceable in your circumstances and how it interacts with your obligations under Australian Consumer Law (ACL).

Are You Accidentally Creating An Unfair Or Unworkable Arrangement?

Sometimes, a contingency clause can create a deal that looks fair in principle but is difficult to run in practice.

Examples include:

• a condition that depends on a third party, but nobody controls the third party’s timing;
• a condition that is purely subjective (“at our discretion”), increasing dispute risk;
• a condition that conflicts with other terms (such as payment or delivery dates).

If your contract is with a customer or supplier on standard terms, you should also be mindful of how broadly one-sided contingencies might be viewed, especially in the context of unfair contract terms risk.

How To Draft A Contingency Clause That Protects Your Business

Contingency clauses don’t need to be complicated. They just need to be clear. When drafted well, they create certainty and reduce the chance of disputes.

Here are the key drafting elements to consider when you’re putting a contingent contract in place.

1. Describe The Condition In Objective Terms

Try to write the condition so an outsider can tell whether it has been met.

For example, instead of “subject to finance”, consider something like:

• finance approval from a bank or lender for at least $X by , on terms acceptable to the buyer (or specify key terms such as maximum interest rate).

If you do need a degree of subjectivity (for example, due diligence), be clear about what “satisfactory” means and what information must be provided.

2. Set Out The Process For Confirming The Condition

Your contract should include a practical process, such as:

• who gives notice that the condition has been satisfied;
• how notice must be given (email, signed letter, within business hours, etc.);
• whether evidence is required (for example, a finance approval letter).

This is especially important for startups where deals move quickly and communications often happen over email or Slack. If the contract doesn’t define how notice works, you risk disagreement later about whether something was properly confirmed.

3. Clarify What Happens If The Condition Isn’t Met

This is the part many businesses forget. You want to be crystal clear on the consequences.

Ask:

• Does the contract automatically terminate?
• Can either party terminate, or only one party?
• What happens to deposits, IP, deliverables, and confidential information?
• Do any clauses survive termination (for example, confidentiality or dispute resolution)?

Even if the contract ends, you usually want certain protections to continue (like confidentiality and ownership of any work already created).

4. Include A “No Waiver Unless In Writing” Style Rule

In fast-moving business negotiations, it’s easy for someone to say “it’s fine, we’ll extend the deadline” informally.

Consider a clause that says changes or waivers must be in writing signed by both parties. This reduces the risk of disputes about side conversations.

5. Align The Contingency With The Rest Of Your Contract

Make sure the conditional clause doesn’t clash with:

• payment provisions (when invoices are issued, when deposits become due);
• delivery timelines;
• termination rights;
• liability and risk provisions;
• any “entire agreement” clauses.

As a practical tip: when you add a contingency, read the contract as if you’re the person running the deal day-to-day. Ask yourself, “What happens tomorrow?” and “What happens if the event takes 60 days instead of 10?”

What Other Documents Should Sit Alongside A Contingent Contract?

A contingent contract often doesn’t stand alone. Depending on your transaction, you may also need supporting documents to properly manage risk while you wait for the condition to be satisfied.

Here are some common documents startups and small businesses use alongside a contingent contract:

• Non-Disclosure Agreement (NDA): if you’ll share sensitive financials, customer lists, or product plans during negotiation or due diligence.
• Heads of Agreement (or term sheet): if you want to document commercial terms early, while leaving the final detail to a formal contract. Be careful here, because some “heads of agreement” can be binding depending on drafting and conduct.
• Privacy Policy: if your deal involves collecting personal information (for example, customer data during onboarding or beta testing), you may need a compliant Privacy Policy.
• Company Constitution: if your contingency depends on shareholder approvals or director decisions, it’s worth ensuring your corporate governance documents (like a Company Constitution) support the process you’re trying to follow.
• Employment Contract: if the contingency involves hiring (for example, conditional offers subject to funding), you may want a properly drafted Employment Contract that clearly sets expectations and protects your IP and confidential information.
• Authority To Act: if you need someone else to negotiate or sign on behalf of the business (for example, a manager or advisor), an Authority to Act Form can help make roles and authority clear.

Not every business will need all of these, but the right combination can reduce “grey areas” and make your contingent contract much easier to manage.

Key Takeaways

• A contingent (conditional) contract is an agreement where certain obligations depend on an uncertain future event, like finance approval, due diligence outcomes, or regulatory consent.
• Contingent contracts are common for startups and small businesses because they help you progress deals while managing risk, cashflow, and timing.
• The biggest problems come from vague contingencies, missing deadlines, and unclear consequences if the condition is not met.
• A strong contingency clause should clearly define the condition, set a timeframe, allocate responsibility for steps required, and explain exactly what happens if the condition succeeds or fails.
• Supporting documents (like NDAs, governance documents, and employment contracts) often matter just as much as the contingent contract itself, depending on the transaction.

If you’d like help drafting or reviewing a contingent contract for your startup or small business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.