Repurchase upon breach: Overview, definition, and example
What is repurchase upon breach?
Repurchase upon breach refers to a contractual provision that allows one party to buy back an asset, usually a security or property, if the other party breaches the terms of the agreement. In the context of business agreements or investment transactions, this clause ensures that if the agreement is violated, the non-breaching party has the right to compel the breaching party to repurchase the asset or investment. The clause is designed to protect the non-breaching party from the adverse effects of a breach, ensuring that they are compensated or can reverse the transaction if the other party fails to meet their obligations.
In simpler terms, repurchase upon breach means that if one side doesn’t follow the terms of the contract, the other side has the right to get their property or money back.
Why is repurchase upon breach important?
The repurchase upon breach clause is important because it offers a remedy for parties to mitigate the consequences of a breach. By providing the right to compel a repurchase, this provision helps restore the non-breaching party to the position they were in before the breach occurred, reducing the financial harm caused by the violation of the agreement.
For businesses, including a repurchase upon breach clause can provide an added layer of security, ensuring that they can reverse an agreement if it becomes unfavorable due to the other party’s failure to meet contractual obligations. For investors or buyers, the clause provides assurance that they will not be stuck with an asset or investment if the seller or other party fails to meet the terms of the deal.
Understanding repurchase upon breach through an example
Imagine a company that sells shares to an investor with an agreement that includes a repurchase upon breach clause. The agreement specifies that if the company defaults on its obligations or misrepresents its financial condition, the investor has the right to require the company to repurchase the shares at the original purchase price. If the company fails to meet its obligations under the contract, the investor can invoke the repurchase clause, ensuring that they are compensated for the breach.
In another example, a seller agrees to sell a property to a buyer under the condition that the buyer will make timely payments. If the buyer defaults on their payments, the seller can trigger the repurchase clause and demand that the buyer return the property and reimburse the seller for the original price.
Example of a repurchase upon breach clause
Here’s how a repurchase upon breach clause might appear in a contract or agreement:
"In the event that the Buyer fails to fulfill any material obligation under this Agreement, the Seller shall have the right to repurchase the [asset or property] at the original purchase price. The Buyer agrees to return the [asset or property] to the Seller and provide any necessary documentation to effectuate the repurchase upon breach. The repurchase right shall be exercised within [X] days of written notice of breach."
Conclusion
The repurchase upon breach clause is a valuable tool in contracts that provides a mechanism for one party to recover assets or funds if the other party violates the terms of the agreement. It offers protection against the financial impact of a breach and ensures that the non-breaching party can reverse the transaction and be made whole.
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.