A contingency is a condition written into a purchase agreement that must be fulfilled before a business sale can close. If the condition is not met, either party typically has the right to walk away from the deal without penalty.

How Contingencies Function in a Purchase Agreement

When a buyer submits an offer to purchase a business, that offer almost always includes at least one contingency. These conditions exist because buyers need assurance on specific issues before committing fully to a transaction. Sellers, in turn, need to understand what they are agreeing to and what obligations or risks each contingency creates for them.

Contingencies can be straightforward and objective, or they can be broad and subjective. An objective contingency might state that the sale is conditional upon the buyer securing a commercial loan within 30 days. A subjective contingency might state that the sale is conditional upon the buyer’s review and approval of the seller’s financial records. The first has a clear resolution path. The second gives the buyer significant discretion, since disapproval of the financials could be used as an exit from the deal for almost any reason.

Understanding this distinction matters. If you are selling a business, agreeing to open-ended contingencies without time limits or defined criteria can leave you in a prolonged holding pattern with no guaranteed outcome.

Common Types of Contingencies

While no two deals are identical, certain contingencies appear regularly in business purchase agreements:

• Financing contingency: The sale proceeds only if the buyer obtains acceptable financing within a specified period.
• Due diligence contingency: The buyer has a defined window to review financial statements, tax returns, contracts, and operational records.
• Lease contingency: The sale depends on the buyer securing a new lease or an extension of the existing lease on acceptable terms.
• License or permit transfer: Certain industries require regulatory approval or license transfers before a new owner can legally operate.
• Landlord approval: Many commercial leases require landlord consent before a business can be transferred to a new owner.

Each of these contingencies serves a legitimate purpose. The issue is not whether they exist, but how they are structured. Poorly written contingencies create ambiguity, delay closings, and sometimes kill deals that should have closed.

Why Structure and Timing Are Critical

Every contingency in a purchase agreement should include a defined deadline. Without a time limit, a contingency can remain unresolved indefinitely, which benefits no one. A buyer who has not yet secured financing after 60 days is unlikely to do so, and a seller who has kept the business off the market during that period has lost real opportunity cost.

Deadlines create accountability. They also create natural decision points where both parties must either confirm they are moving forward or acknowledge that the deal is not viable. This protects the seller’s time and keeps the transaction on a realistic timeline.

Beyond timing, contingencies should be proportionate to the actual concern they address. If a buyer has a minor question about a piece of equipment, that question should be resolved during initial conversations, not written into the contract as a formal condition. Contingencies are best reserved for issues that are genuinely material to the buyer’s decision to proceed.

The Seller’s Perspective on Contingencies

Sellers sometimes view contingencies as obstacles, but that framing is not entirely accurate. A buyer who raises legitimate concerns and structures them as contingencies is a buyer who is engaged and working toward a close. The alternative, a buyer who raises no concerns and then backs out at the last moment, is far more disruptive.

That said, sellers should evaluate each contingency carefully before accepting it. Questions worth asking include: Is this condition reasonable given the nature of the business? Is there a clear deadline? Is the resolution criteria specific enough to prevent the buyer from using it as an exit clause for unrelated reasons?

Sellers who have prepared their financials, organized their records, and addressed known operational issues before going to market are in a much stronger position to negotiate contingency terms. Buyers have less to question when the documentation is clean and the business is well-presented.

The Buyer’s Perspective

For buyers, contingencies are a legitimate risk management tool. Acquiring a business involves significant capital and personal commitment. It is reasonable to want confirmation on financing, lease terms, and financial performance before proceeding to close.

The key is to limit contingencies to issues that are genuinely critical. A long list of contingencies signals hesitation and can create friction with the seller. It can also complicate negotiations if the seller perceives the buyer as uncommitted or overly cautious. Focused, well-defined contingencies demonstrate that the buyer is serious and has done enough preliminary work to know what actually needs to be confirmed.

Buyers exploring available opportunities can review current businesses for sale to get a clearer sense of what types of deals are in the market and what due diligence considerations typically arise.

What Makes a Contingency Reasonable

A reasonable contingency is specific, time-bound, and directly connected to a material aspect of the transaction. It should be something that can realistically be resolved within the deal timeline, and the resolution criteria should be clear enough that both parties understand what satisfying the condition actually looks like.

Contingencies that are vague, unlimited in duration, or tied to conditions outside either party’s control tend to create problems. A contingency requiring a government agency to act within a specific timeframe, for example, may be legitimate in concept but difficult to enforce in practice. In those cases, the parties need to agree on what happens if the condition cannot be met within the specified window.

Working Through Contingencies Effectively

Most business sales involve multiple contingencies, and working through them is a normal part of the transaction process. The goal is not to eliminate contingencies entirely but to manage them in a way that keeps the deal moving forward and protects both parties appropriately.

Experienced advisors track contingency deadlines, facilitate the exchange of information needed to satisfy conditions, and help both sides navigate situations where a contingency cannot be met as written. When issues arise, there is often room to renegotiate terms, extend deadlines, or find alternative solutions that allow the deal to proceed.

Contingencies are not inherently problematic. Handled well, they provide structure and clarity. Handled poorly, they become the reason a deal falls apart.