Repetition of representations and warranties: Overview, definition, and example
What is repetition of representations and warranties?
Repetition of representations and warranties refers to a clause in a contract where the parties involved agree that the statements made (representations) and promises (warranties) in the contract are true and will continue to be true at certain points during the life of the agreement. Essentially, this clause confirms that the parties' assertions about their legal, financial, and operational status remain accurate and binding throughout the contract's term, typically on certain dates or events, such as closing or during the performance of obligations.
The purpose of repetition is to maintain the accuracy and validity of the representations and warranties, ensuring that any changes or developments that could affect the contract are disclosed and addressed promptly.
Why is repetition of representations and warranties important?
The repetition of representations and warranties is important because it ensures that the parties remain accountable for the truthfulness of their statements throughout the life of the contract. It provides an ongoing obligation for both parties to disclose any material changes in circumstances that could affect the agreement.
For example, if a seller makes certain representations about the financial health of the business they are selling, the repetition clause ensures that these representations remain accurate up until the closing of the transaction, giving the buyer reassurance. If any material changes occur that would affect the representations, the seller is typically required to update the buyer or face potential liability.
Understanding repetition of representations and warranties through an example
Imagine a company entering into a merger agreement. The buyer requires that the seller represent that the company’s financial statements are accurate and that there are no pending legal issues. The contract includes a repetition of representations and warranties clause, which means that the seller must ensure that these representations remain true up until the closing date of the merger. If any financial discrepancies or legal issues arise before closing, the seller must notify the buyer, or the buyer may have the right to withdraw or renegotiate the deal.
In another example, a business enters into a service contract with a supplier, and the supplier represents that they have the necessary licenses to provide the service. The contract includes a clause that requires the supplier to reaffirm this representation at regular intervals during the contract's term. If the supplier loses their license at any point, they must notify the business, or the contract could be terminated for breach.
An example of a repetition of representations and warranties clause
Here’s how a repetition of representations and warranties clause might look in a contract:
“The Seller represents and warrants that all representations made in this Agreement are true and accurate as of the date hereof and shall be deemed repeated and true as of the Closing Date. If any representation or warranty ceases to be true or accurate prior to the Closing, the Seller shall promptly notify the Buyer of such change.”
Conclusion
Repetition of representations and warranties ensures the ongoing accuracy of the statements made by the parties throughout the duration of the contract. By reaffirming these representations, parties are held accountable and are encouraged to disclose any material changes that could affect the agreement. This helps protect all parties involved, ensuring that the contract remains valid and fair as circumstances evolve, and reduces the risk of disputes or claims after the contract is executed.
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.