Question 1

What are representations and warranties?

Accepted Answer

Representations are statements of fact made by one party to induce the other to enter a contract. Warranties are promises that the stated facts are true and will remain true. In real estate transactions: the seller typically represents and warrants: they have the authority to sell the property, the property is free from undisclosed encumbrances, there are no pending lawsuits affecting the property, the property complies with applicable laws, and all material information has been disclosed. The buyer relies on these statements when deciding to purchase.

Question 2

What happens if a representation or warranty is false?

Accepted Answer

False R&W: the injured party can: sue for breach of contract (recover damages for losses caused by the false statement), seek rescission (cancel the contract and restore both parties to their pre-contract positions), and claim fraud (if the false statement was made knowingly or recklessly; fraud allows recovery of punitive damages in Florida). The contract should specify: which representations survive closing (representations that continue to be enforceable after the transaction closes; typically for 1-3 years), and the remedies available (caps on liability, indemnification provisions, and notice requirements).

Question 3

How should representations and warranties be negotiated?

Accepted Answer

Negotiation: the seller should: limit representations to matters within the seller’s knowledge ("to Seller’s knowledge" or "to the best of Seller’s knowledge"), include material adverse effect qualifiers (only material issues trigger liability), set survival periods (limit how long the representations remain enforceable after closing), and cap liability (limit the total amount the seller can be liable for). The buyer should: seek broad representations (without knowledge qualifiers), long survival periods (to allow time to discover issues), and strong remedies (indemnification, escrow holdbacks, and no liability caps).

Representations and Warranties

Representations and Warranties

What They Cover

If False

Negotiation

Related Terms

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