Representations and Warranties – An essential part of every agreement

The procedure for drafting an agreement should be dealt by each party with care in order for the willingness and purposes of the parties to be reflected with clarity. An agreement, however, should not reflect the willingness of the parties solely but should also secure that the parties are protected in case an agreement is breached or is not enforced or effected as originally promised.

Representations and warranties are terms which can be included on the text of an agreement in order to secure the validity of the contract and ensure that each party acts in good faith having the best intention to fulfil their contractual obligations.

Representations reflect statements of facts and assertions which are included in the text by either party in order to encourage and convince the other party to proceed with the agreement. For example, in the case of a loan agreement, the representations provided by the borrower, may encourage and convince the lender to provide them with a loan, and in the case of a sales agreement the representations of the seller may encourage and convince the buyer to proceed with the purchase. Warranties are the statements provided by either party to the other party in order to guarantee that the enforcement of the agreement will be processed smoothly and that no circumstances will cause a breach by the warranting party.

The distinction between the representations and the warranties is not always clear cut, and on the text of the agreements representations and warranties are usually included in the same paragraph together. Due to the above, their nature is usually determined by the court in the event that there is a dispute on the agreement.

Despite the fact that their distinction may not be clear at first sight, the inclusion of the representations and warranties in the text of an agreement is essential, since the innocent party can use the representations and warranties of the party in breach in order to prove that this party made false and inaccurate declarations. Especially in the case where the innocent party claims that they have been deceived, the representations and warranties included in the agreement could be considered as part of the evidence in order for the innocent party to be reimbursed.

Examples of Representations and Warranties can be the following:

• That the party selling an asset is indeed the legal owner of this asset.
• That a company who is acting as a borrower in a loan agreement is indeed an entity in good standing and can receive the funds provided.
• That, in the case of a share purchase agreement, no other person has any rights or claims on the shares to be sold.
• That the party, in any case, does not have any litigation actions or claims against them and/or any litigations claims which involve the assets to be sold or transferred.

Concluding the above, it is important for a party negotiating an agreement to make sure that Representations and Warranties are included in the text. On the other hand, it is important for the party providing the representations and warranties to make sure that their statements are accurate and do not include any statements which coerce the other party to come to an agreement.

The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Chrystalla Philippou Associate in the corporate and commercial department, Athens at tel +30 210 3387060 or by email at chrystalla.philippou@kyprianou.com