What is a Reps and Warranties Negotiation?
Reps and warranties are promises or statements made by parties in a legal working relationship. You’ll see them appear as clauses in various agreements, such as if a company is being sold or merging with another company.
To ensure these promises are authentic and protect your interests, you should scrutinize all reps and warranties. You can also negotiate them for more favorable contracts.
Read the rest of this article for tips on how to negotiate reps and warranties and why it’s worthwhile to consult a qualified lawyer for help with the process.
What are Key Terms of Reps and Warranties to Negotiate?
Reps and warranties usually contain the following information:
- Scope. Identify what factual statements are actually being made by the company.
- Baskets and caps. The financial recovery amount should be limited to prevent risks.
- Representation. This is a statement of fact that a party makes about its state of affairs, such as if a company states that it’s duly incorporated and validly existing.
- Warranty. This is an assurance that a certain fact is true. Make sure it’s linked to a contractual remedy if it’s discovered to be untrue.
- Materiality. This limits a representation or warranty to specific matters that are significant for the transaction involved.
- Survival. There should be clarity about how long reps and warranties remain in effect after signing or closing.
- Losses or damage. Define the type of consequences that will apply for these events.
What are Tips for Negotiating Reps and Warranties?
Since false statements can result in financial consequences, it’s important to scrutinize a contract’s reps and warranties. You might be able to negotiate them for more favorable clauses.
Group Your Warranties
If there are many warranties you want to discuss, try to group them for clarity. For example, you could combine corporate existence and authority with ownership titles.
Make sure you prioritize the warranties that are most important to the transaction.
Define Materiality
If there are broad or vague definitions of what material contract means, you could create a loophole. Start by defining materiality and place a monetary threshold on it, or remove it if the subject matter isn’t important.
Negotiate Disclosures
When scrutinizing the seller’s statement that they have disclosed all necessary information, you want to ensure you know where and how it has been disclosed. Focus on having a fair disclosure standard that requires enough information for the buyer to reasonably identify the scope and nature of the issue being discussed.
Discuss Remedies
You want to ensure that there are protective measures in place. Check survival periods and liability caps. Survival periods should typically be around 12 to 24 months so the buyer has enough time in which to complete a full audit. In agreements between buyers and sellers, it’s sometimes common for buyers to try to push for a high liability cap to cover any potential losses.
Get a Legal Review
It’s in your best interest to review reps and warranties before you negotiate them with the other party. A lawyer will provide a thorough review of your reps and warranties, flagging anything risky and ensuring you negotiate for greater protections.
To find a lawyer, head onto ContractsCounsel, one of the largest online legal marketplaces where you can easily and quickly connect with a curated network of vetted, experienced lawyers.
Requesting that a lawyer on the platform reviews your reps and warranties for clarity is easy. Here are the steps to follow:
- Go to the ContractsCounsel marketplace, where it’s free to post a project.
- Select ‘One-time project’ and ‘Contract review.’
- Post your project with details of what you need to match with the best lawyers on the platform.
- Wait for bids. You’ll receive multiple bids from lawyers directly on the platform who will help you.
- Review the lawyers’ information. You should check the lawyers’ profiles for information about them, such as their location, expertise, years of experience, client ratings for previous projects, and credentials.
- Select a lawyer to review your reps and warranties for a flat fee.
Do You Need a Lawyer to Negotiate Reps and Warranties?
It’s not always necessary to hire a lawyer to negotiate reps and warranties for you, but it’s worth it if you’re unsure of how to navigate the process or if you’re worried about your legal position.
A lawyer will help you by:
- Identifying any hidden legal risks in the reps and warranties so that you know which ones to pay attention to during a negotiation for the best outcome.
- Explaining what warranties actually mean and what their consequences are if they are not true.
- Negotiating the warranty scope, such as if they should be qualified by knowledge or other limitations.
- Discussing materiality thresholds so that small issues don’t create liability unnecessarily.
- Reviewing all disclosure schedules for clarity.
- Negotiating survival periods so that the most important warranties remain enforceable for a suitable amount of time after closing.
- Reviewing remedies for breaches, such as damages, and other protections.
- Putting agreed-on changes from the negotiation of reps and warranties into your final agreement or contract so that they’re clear and specific for both parties.
Where to Find a Lawyer for a Reps and Warranties Negotiation
If you need to hire a lawyer to negotiate your reps and warranties, you don’t have to wonder where to find one. On ContractsCounsel, you’ll easily connect with a qualified lawyer who has negotiation expertise and skills to assist you. They’ll uncover potential risks and liabilities, while ensuring you have a more favorable working arrangement with the other party.
