Reaffirmation of representations and warranties: Overview, definition, and example
What is reaffirmation of representations and warranties?
Reaffirmation of representations and warranties refers to a contractual requirement for one or both parties to confirm that the statements and guarantees they originally made in the agreement remain true at specific points in time. This ensures that the conditions and commitments stated in the contract are still valid, particularly before key events such as loan disbursements, contract renewals, or major transactions.
For example, in a loan agreement, a borrower may be required to reaffirm that their financial statements remain accurate before receiving additional loan funds.
Why is reaffirmation of representations and warranties important?
This clause protects both parties by ensuring that the fundamental assurances made at the start of a contract still hold true throughout its term. Without reaffirmation, one party might proceed with a transaction based on outdated or inaccurate information.
For businesses, reaffirmation clauses provide an extra layer of security, particularly in high-value deals such as mergers, acquisitions, and financing agreements. They help prevent fraud, misrepresentation, and unexpected risks.
Understanding reaffirmation of representations and warranties through an example
A company secures a business loan and, as part of the loan agreement, provides representations about its financial health, compliance with laws, and lack of outstanding legal disputes. The contract includes a reaffirmation clause requiring the company to confirm these statements are still accurate each time it draws additional loan funds. If the company’s financial condition worsens, it must disclose this before accessing more credit.
In another scenario, a business signs a merger agreement, stating that its intellectual property rights are valid and that it has no pending lawsuits. The contract requires the company to reaffirm these representations right before closing the deal. If a lawsuit arises before the merger is finalized, the other party may reconsider the transaction.
An example of a reaffirmation of representations and warranties clause
Here’s how this type of clause might appear in a contract:
“Each Party hereby reaffirms that the representations and warranties set forth in this Agreement remain true, accurate, and complete as of the date of any material transaction, funding event, or contract renewal. If any material change has occurred that affects the accuracy of such representations, the Party shall disclose such changes prior to proceeding with the transaction.”
Conclusion
Reaffirmation of representations and warranties ensures that key assurances made in a contract remain valid over time. This protects businesses from relying on outdated or incorrect information in financial, commercial, or legal transactions. By requiring reaffirmation at critical moments, parties can mitigate risks and ensure transparency in their 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.