Non-reliance: Overview, definition, and example
What is non-reliance?
A non-reliance clause is a contractual provision stating that a party has not relied on any statements, representations, or promises outside of the written agreement when entering into the contract. This clause helps prevent disputes by ensuring that only the terms explicitly stated in the contract are legally binding, rather than any prior discussions, emails, or verbal assurances.
For example, if a business agrees to purchase software based on a contract that includes a non-reliance clause, they cannot later claim they were misled by verbal promises about additional features that were not included in the contract.
Why is non-reliance important?
A non-reliance clause is important because it limits liability and reduces the risk of contractual disputes. Without it, one party might argue that they were misled by statements made before signing the contract, even if those statements were never included in the final agreement.
For businesses, a non-reliance clause ensures that the contract is the only enforceable source of rights and obligations, preventing unexpected legal claims based on prior negotiations. This is especially useful in commercial contracts, mergers and acquisitions, and investment agreements.
Understanding non-reliance through an example
Imagine a small business signs a lease agreement for office space. During negotiations, the landlord verbally assures the tenant that the building will have free parking. However, the final lease agreement does not mention free parking and includes a non-reliance clause. Later, when the tenant complains about parking fees, they cannot claim that the landlord misled them because the contract states they did not rely on any promises outside the written terms.
In another scenario, an investor agrees to buy shares in a startup. Before signing, the founders make optimistic claims about projected revenues. However, the contract includes a non-reliance clause stating that the investor has not relied on any projections or verbal statements outside of the written agreement. If the startup underperforms, the investor cannot sue based on those earlier claims.
An example of a non-reliance clause
Here’s how a non-reliance clause might appear in a contract:
“Each Party acknowledges and agrees that in entering into this Agreement, it has not relied on any statement, representation, or warranty, whether oral or written, except as expressly set forth in this Agreement.”
Conclusion
A non-reliance clause protects businesses from claims based on pre-contractual discussions by ensuring that only the written terms of the agreement are enforceable. This helps reduce disputes and legal risks, making contracts more predictable and reliable. Businesses should carefully review such clauses to understand their impact before signing agreements.
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.