Also known as: material adverse effects · MAE
Written by attorneys · grounded in primary & secondary sources — see below
2 senses
An adverse change in a client's legal position or interests that would result from a lawyer's withdrawal from representation. The standard measures whether termination of the relationship leaves the client in a meaningfully worse position with respect to pending matters, deadlines, or strategic opportunities.
A substantial deterioration in the business, financial condition, or operations of a company that permits a party to a merger agreement to terminate the transaction. The clause allocates residual risk between signing and closing by allowing exit when the target suffers a material decline not otherwise carved out.
Each sense below has its own examples, sources, and questions.
An adverse change in a client's legal position or interests that would result from a lawyer's withdrawal from representation. The standard measures whether termination of the relationship leaves the client in a meaningfully worse position with respect to pending matters, deadlines, or strategic opportunities.
Select any source to read its text and confirm it supports the definition.
Elena represents Helping Hands, a charity, in reviewing a routine grant agreement. The foundation has extended the signing deadline, and a legal aid clinic stands ready to assume the matter immediately. Because the grant is straightforward and successor counsel can begin work without delay, Elena's withdrawal produces no material adverse effect on the charity's interests.
A lawyer serves as a director of a legal services organization that is considering a decision adverse to one of the lawyer's clients. The lawyer recognizes that participation in the decision could produce a material adverse effect on the representation of that client and therefore declines to participate.
Withdrawal causes a material adverse effect when it leaves the client in a meaningfully worse position, such as missing imminent deadlines, losing strategic leverage, or facing a gap in representation that cannot be filled promptly by successor counsel. The standard focuses on substantive harm rather than mere inconvenience or the timing of formal appearances.
Supporting sources
No. Nonpayment and noncooperation may support permissive withdrawal, but the lawyer must still ensure that withdrawal can be accomplished without material adverse effect on the client's interests. Courts and ethics opinions examine whether substitute counsel is available and whether remaining time permits an orderly transition.
Supporting sources
A substantial deterioration in the business, financial condition, or operations of a company that permits a party to a merger agreement to terminate the transaction. The clause allocates residual risk between signing and closing by allowing exit when the target suffers a material decline not otherwise carved out.
Select any source to read its text and confirm it supports the definition.
Hexion agrees to acquire Huntsman under a merger agreement containing a material adverse effect closing condition. After signing, Huntsman's business experiences a significant downturn. Hexion claims the downturn constitutes a material adverse effect that excuses its obligation to close.
The clause shifts residual pre-closing risk to the seller by allowing the buyer to walk away if the target suffers a substantial deterioration in its business or financial condition. It functions as a closing condition, a qualifier on representations, or a standalone representation, subject to negotiated carve-outs for industry-wide or known risks.
Supporting sources
No. Disclosure in due diligence does not by itself relieve a party of liability or satisfy an MAE closing condition. The contractual language controls, and the buyer must still demonstrate that the adverse change meets the contractual definition of materiality.
Supporting sources