Representations and Warranties Information
Representations and warranties are essential components of every business purchase agreement. They serve two critical functions: first, they force the seller to disclose material information about the business during the transaction; second, they allocate risk by creating indemnification liability if any statement turns out to be untrue. Common seller representations and warranties include accuracy of financial statements, ownership of assets, absence of undisclosed liabilities, compliance with laws, status of contracts and leases, condition of inventory and equipment, employment matters, tax compliance, environmental conditions, and absence of pending litigation.
Florida Legal Definition
Under Florida law, representations and warranties in business purchase agreements are contractual provisions enforceable according to their terms. Florida follows the general rule that a party can rely on representations made in a purchase agreement. However, Florida courts have addressed tension between contractual representations and the buyer's independent due diligence, generally holding that contractual disclaimers and integration clauses supersede prior statements not included in the agreement. Florida Statutes §725.01 (statute of frauds) requires certain promises to be in writing.
How It's Used in Practice
In practice, the negotiation of representations and warranties is one of the most time-intensive parts of a business sale. Sellers want representations to be qualified by knowledge (limited to what the seller actually knows), material adverse effect (only covering significant issues), and scheduled exceptions (disclosure schedules that carve out known issues). Buyers want broad, unqualified representations with long survival periods. Attorneys negotiate survival periods (typically 12-24 months for general representations, longer for tax and environmental), baskets, caps, and escrow provisions to balance the interests of both parties.
Key Takeaways
- Representations and warranties are factual statements about the business in a purchase agreement.
- Force disclosure and allocate risk between buyer and seller.
- Breaches trigger indemnification obligations.
- Survival periods, baskets, caps, and escrow provisions are key negotiated terms.
- Florida courts enforce these provisions according to their contractual terms.
Disclaimer: The information and opinions provided are for general educational, informational or entertainment purposes only and should not be construed as legal advice or a substitute for consultation with a qualified attorney. Any information that you read does not create an attorney–client relationship with Barnes Walker, Goethe, Perron, Shea & Johnson, PLLC, or any of its attorneys. Because laws, regulations, and court interpretations may change over time, the definitions and explanations provided here may not reflect the most current legal standards. The application of law varies depending on your particular facts and jurisdiction. For advice regarding your specific situation, please contact one of our Florida attorneys for personalized guidance.
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