Provided by: Jennifer Kirschenbaum, Esq.
March 18, 2021
Prepared by Jesse Kirschenbaum, Esq.
Oftentimes clients will focus on only certain aspects of a deal, such as the purchase price or how the agreement deals with prepaid services or accounts receivable. However, one of the most important, if not the most important, part of a purchase agreement is oftentimes an area most commonly glossed over, and that is the representations and warranties.
Representations and warranties are statements made by a party which serve as promises the other party may rely on as a reason to close - typically addressing the state of the asset being transferred, including, but not limited to, the financial condition of the practice, the existence of any current or past litigation or disciplinary proceeding concerning the practice or any of its doctors and the authority of the seller to sell the assets being sold, just to name a few.
Why are the representations and warranties so important? These provisions will generally provide the basis for future litigation between the buyer and the seller if problems arise after the closing (i.e., revenue doesn't pan out as expected, employees demand payouts for compensation not disclosed, government audit pops up post-closing...). Too often, the parties may gloss over the reps and warranties and as a result sign a deal with language in it misrepresentative of the state of affairs. A breach of reps and warranties can give rise to a breach of contract claim.