Absence of certain changes or events: Overview, definition, and example
What is absence of certain changes or events?
The absence of certain changes or events refers to a contractual provision where a party agrees that no significant negative changes, such as financial, operational, or legal issues, have occurred or are expected to occur during the course of an agreement. This clause assures the other party that certain conditions, such as the financial health or the status of business operations, remain stable, thus ensuring the agreement can be carried out without unexpected disruptions.
For example, in a merger agreement, a company may represent that there have been no material adverse changes to its financial position or business operations since the last financial statement.
Why is absence of certain changes or events important?
This clause is important because it helps protect parties in an agreement by ensuring that nothing has occurred that could jeopardize the success or stability of the transaction. By confirming the absence of certain changes or events, businesses can mitigate risks and proceed with confidence.
For businesses, this clause provides clarity and reduces the likelihood of unexpected disruptions or renegotiations due to unforeseen developments during the contract period.
Understanding absence of certain changes or events through an example
Imagine a business is negotiating the purchase of another company. As part of the agreement, the seller provides a representation that no major lawsuits or regulatory issues have arisen since the last due diligence review. This confirms that the transaction can proceed smoothly without any unforeseen risks related to legal or operational matters.
In another example, a lender may require that a borrower represent that there have been no material adverse changes in the borrower’s financial status since the last quarterly report, to ensure the borrower remains capable of meeting their obligations.
An example of an absence of certain changes or events clause
Here’s how an absence of certain changes or events clause might look in a contract:
“The Seller represents and warrants that, as of the Closing Date, there have been no material adverse changes in the financial condition, business operations, or legal status of the Company since the date of the most recent financial statements provided to the Buyer. The Seller further agrees to notify the Buyer promptly of any such changes that occur prior to the Closing.”
Conclusion
The absence of certain changes or events clause ensures that both parties are protected from unexpected disruptions or risks that could impact the outcome of a contract or transaction. It helps provide stability, transparency, and assurance that conditions remain favorable for fulfilling the agreement’s terms.
By including clear provisions regarding the absence of certain changes or events, businesses can proceed with confidence and reduce the potential for conflicts or renegotiations during the course of the agreement.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.