Understand Conditions Precedent (CPs) in commercial mortgage commitments and how they affect closing and lender obligations in U.S. CRE deals.
Conditions Precedent, often abbreviated CPs, are the legal and operational prerequisites set out in a loan commitment that must be satisfied before a lender is obligated to fund. In commercial real estate lending CPs commonly include delivery of corporate or entity resolutions, favorable title and survey results, environmental reports, evidence of insurance, execution of loan and security documents, and receipt of any payoffs or subordination agreements. CPs create clear trigger points that allocate risk and define the lender's funding duty.
When negotiating a loan commitment, borrowers and brokers should review CPs line-by-line to understand what must be produced at closing and who bears the cost and responsibility for each item. Use CPs to plan the closing timeline, procure required reports, and coordinate signings with title and escrow. If a CP cannot be satisfied exactly as written, propose alternative measures such as escrowed funds, curing periods, or certified statements to avoid losing the commitment. Track CP fulfillment formally to prevent last-minute funding failures.
CPs are critical because they convert a conditional loan commitment into a binding funding obligation; lenders may refuse to fund if CPs remain unmet. For borrowers CPs affect scheduling, cash needs, and compliance costs because some items must be delivered at closing. For lenders CPs protect against unforeseen title, entity, environmental, or documentation risks. Clear and achievable CPs reduce negotiation friction, minimize closing delays, and clarify remedies if issues arise before funding.