Representations and Warranties
Statements of fact (reps) and promises that certain facts are true and will remain true (warranties).
While straightforward in theory, many businesses fail to actively track obligations tied to this concept - often resulting in missed deadlines, unintended renewals, penalties, or loss of contractual rights.
US Law · For business owners and foundersWhat is a Representations and Warranties?
Representations are statements of fact made at a point in time - typically at signing or closing. Warranties are promises that certain facts are true and will remain true during the contract period. Together, representations and warranties (often called "reps and warranties" or simply "R&W") form the factual foundation of a deal. They tell the other party what they are agreeing to - and create liability if those statements turn out to be false.
In acquisition agreements, reps and warranties are among the most heavily negotiated provisions. The seller makes extensive statements about the business - its financial condition, compliance with law, ownership of assets, pending litigation, employee matters, and more. The buyer relies on those statements in deciding to proceed with the deal. A breach entitles the buyer to indemnification for losses caused by the inaccuracy.
In practice, many teams rely on a contract expiry tracking system to stay on top of dates and obligations tied to clauses like this.
Key Elements
Representations (Reps)
Reps are present-tense statements of fact: "The company has no pending litigation." "All financial statements have been prepared in accordance with GAAP." "The company owns all intellectual property used in its business free and clear of liens." A rep is a snapshot - it describes what is true when made.Warranties
Warranties are forward-looking promises: "The software will perform in material conformance with the specifications for 12 months." Unlike a rep, a warranty continues to apply after signing. A warranty breach occurs when the fact stops being true, even if it was true when stated.Materiality and Knowledge Qualifiers
Sellers frequently negotiate qualifiers to limit their exposure: "material" (only breaches of significant impact), "to the knowledge of seller" (only what they actually knew), and "in all material respects." Buyers push back on these qualifiers because they reduce the protection reps provide.Survival Period
Reps and warranties do not survive indefinitely. The survival period specifies how long after closing the buyer can bring an indemnification claim based on a breach. General reps typically survive 12-24 months. Fundamental reps (like ownership, authority, and capitalization) often survive the statute of limitations or indefinitely.Indemnification for Breach
If a rep or warranty is inaccurate, the breaching party typically owes indemnification for losses resulting from the inaccuracy. M&A agreements usually include deductibles (baskets) before indemnification kicks in and caps on total indemnification exposure. Negotiating these limits is a key part of deal structuring.Real-World Example
In acquiring DataFlow Inc., TechCorp relies on DataFlow's rep that it "has no pending or threatened litigation." Post-closing, TechCorp discovers a $2M patent infringement lawsuit filed against DataFlow two weeks before closing - after the reps were made but before closing. The seller argues the rep was true when made.
This is a "bring-down" issue. Most acquisition agreements require reps to be true and correct at both signing and closing. If DataFlow knew about the lawsuit when the reps were "brought down" at closing and did not disclose it, the rep was false at closing. TechCorp can seek indemnification for the $2M claim. The outcome depends on the exact language of the bring-down condition, the seller's disclosure obligations, and the specific rep language. This is a textbook example of why thorough due diligence and careful rep negotiation matters.
This is why many businesses adopt automated deadline tracking to ensure no critical dates are missed before they pass.
Sample Clause Language
Basic Representation (M&A context)Watch Out For
Accepting broad knowledge qualifiers without defining "knowledge"
"To Seller's knowledge" is meaningless unless the contract defines whose knowledge it covers and whether it includes constructive knowledge (what they should have known). Always define knowledge to include the actual knowledge of specified individuals, and require them to make reasonable inquiry.Short survival periods that cut off claims before issues are discovered
If the survival period is 12 months but you would not discover a breach for 18 months - for example, a tax audit or a latent software defect - you lose your indemnification right. Push for longer survival on reps that relate to matters likely to surface after closing.Relying on reps as a substitute for due diligence
Reps give you a legal remedy if something is wrong. Due diligence gives you the chance to find out before you close. Use both. A right to indemnification is only as valuable as the seller's ability to pay it.Don't let representations and warranties deadlines catch you off guard
Key dates tied to representations and warrantiess - renewal windows, expiry cutoffs, notice periods - can easily slip through the cracks when tracked manually. Missing them triggers automatic extensions, penalties, or lost rights. ExpiryEdge tracks every critical deadline and sends automated reminders before they're due - so nothing slips.
Instead of relying on spreadsheets or manual follow-ups, a centralized renewal reminder system ensures every deadline is visible, tracked, and actioned automatically.
How to Use This in Your Favor
Negotiate fundamental reps to survive indefinitely
Reps about ownership of the business, authority to sign, capitalization, and IP ownership are too important to expire. Push for fundamental reps to survive until the statute of limitations runs or indefinitely.Include a bring-down condition in acquisition agreements
Require that all reps be true and correct at both signing and closing. This prevents the seller from disclosing bad news during the period between signing and closing without giving the buyer an exit right.Frequently Asked Questions
What is the difference between a representation and a warranty?
A representation is a statement that a fact is true at the time it is made. A warranty is a promise that the fact is, and will remain, true. In practice, the terms are often used interchangeably and treated as a single combined concept in most commercial contracts. The distinction matters most in M&A, where the survival periods and remedies for each can differ.
What happens if a rep is accidentally wrong - not fraudulent?
Most acquisition agreements provide for indemnification for innocent breaches of reps and warranties - the seller pays for losses caused by an inaccurate statement even if they did not know it was wrong. The remedies differ from fraud (which triggers greater exposure and may void the entire deal) but still result in financial liability.
Can rep and warranty insurance replace traditional indemnification?
Increasingly yes. Rep and warranty (R&W) insurance has become common in M&A transactions, allowing buyers to make claims against an insurer rather than the seller. It enables sellers to take more of their proceeds at closing (rather than holding escrows) and gives buyers a creditworthy source of recovery. The insurer steps into the seller's shoes for indemnification claims.