What is Third Party Consent?

Definition

Third Party Consent is the approval or permission required from an individual or organization that is not one of the primary parties to a transaction, contract, financing arrangement, or corporate action. The requirement typically arises because the third party has contractual, legal, ownership, security, or other rights that could be affected by the proposed action.

Third Party Consent can be a condition to closing a transaction, completing an assignment, transferring an agreement, changing control of a business, obtaining financing, or modifying an existing contractual relationship. The consent requirement is usually identified during legal, financial, or commercial due diligence.

Table of Contents

The process generally begins by identifying agreements, assets, licenses, financing documents, or other arrangements containing consent provisions. The parties then determine which third party must approve the proposed action and what form that approval must take.

Consent may need to be obtained before an action becomes effective. The relevant agreement may specify whether consent must be written, whether it can be withheld at the third party's discretion, or whether consent cannot be unreasonably withheld. The transaction documents may also establish consent as a closing condition.

  • Identify the consent requirement: Review contracts and related documents for assignment, change-of-control, transfer, or amendment provisions.
  • Identify the consenting party: Determine which lender, customer, supplier, licensor, landlord, regulator, or other stakeholder holds the relevant right.
  • Request approval: Provide the information and documentation required under the applicable agreement.
  • Document the outcome: Retain executed consent, waiver, amendment, or other evidence showing that the requirement has been satisfied.

Common Business and Finance Uses

Third Party Consent is particularly relevant in mergers and acquisitions. A target company's contracts may restrict assignment or require approval following a change in ownership. The buyer and seller therefore need to determine which consents are required and whether they must be obtained before closing.

Financing arrangements can create similar requirements. A lender may have rights concerning changes in ownership, collateral, debt arrangements, or transfers. Obtaining the required approval can therefore form part of transaction execution and closing documentation.

Commercial agreements may also require consent before a company transfers a contract to another entity. This can arise when a business reorganizes its legal structure, sells a business unit, changes a service provider, or transfers contractual responsibilities.

Consent requirements are an important due diligence consideration because an identified requirement can affect transaction timing, contractual continuity, or the conditions that must be satisfied before completion. Review teams commonly create a consent schedule showing the relevant agreement, consenting party, required action, status, and deadline.

The review should distinguish between a requirement for actual consent and provisions that merely require notice. It should also identify whether the agreement provides consequences for proceeding without the required approval and whether a waiver is available.

Third Party Risk describes potential exposure arising from relationships with external parties, making it relevant when assessing how dependencies on customers, suppliers, lenders, licensors, or service providers could affect business operations and financial outcomes.

Third Party Risk Controls are policies, procedures, and monitoring mechanisms used to manage exposure arising from external counterparties. They can support the identification and tracking of consent requirements as part of broader third-party governance.

A Consent Order is different from ordinary Third Party Consent. A consent order is a formal order approved by a court or other authorized body based on an agreement between the relevant parties, whereas Third Party Consent generally concerns permission from an external stakeholder for a proposed contractual or business action.

Organizations can manage Third Party Consent requirements more effectively by identifying them early and connecting each requirement to the relevant transaction or business activity. A centralized consent tracker can record responsible owners, required documents, status, deadlines, and evidence of approval.

  • Review key contracts for consent and change-of-control clauses before signing or closing a transaction.
  • Classify requirements as consent, notice, waiver, amendment, or other contractual action.
  • Assign an owner and target date for every required approval.
  • Maintain executed consents and related correspondence with the underlying agreement.
  • Confirm that obtained consent covers the precise transaction, transfer, or amendment being undertaken.

Summary

Third Party Consent establishes when an external stakeholder must approve a transaction, transfer, amendment, or other business action. Identifying the relevant contractual requirement, obtaining the appropriate approval, and maintaining clear evidence of consent can support transaction execution, contractual continuity, and sound financial decision-making.