Representations and Warranties

Representations and warranties (reps and warranties) are factual statements made by the seller (and sometimes the buyer) in the purchase agreement. Representations are statements about the current or past state of the business; warranties are promises that those statements are true. Together they cover virtually every material aspect of the business: financial statements accuracy, tax compliance and absence of CRA reassessments, ownership of assets, validity of contracts and leases, absence of litigation or regulatory proceedings, accuracy of employee information (including vacation liabilities), condition of equipment, and compliance with environmental laws. If a rep or warranty is false and the buyer suffers a loss as a result, the seller is required to indemnify the buyer for that loss — subject to the indemnification cap (maximum total liability) and basket (minimum claim threshold, also called a deductible). In Canadian SMB transactions, reps and warranties typically survive for 18 to 36 months after closing for general reps and indefinitely (or longer) for fundamental reps (title, authority, capitalization) and tax reps. Buyers should carefully review the bring-down condition — the requirement that reps remain true at closing — as the primary mechanism for walking away if something material changes between signing and closing.