Reps and warranties are the statements in a purchase agreement where you tell the buyer that things are as they appear: the accounts are accurate, the contracts are valid, nobody is suing you, the taxes are filed. They are how a buyer converts what you said during diligence into something enforceable, and they are the part of the paper that keeps a seller exposed after the money has moved.
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Fundamental against general
A small group of statements, usually title to the shares or assets, authority to sell and tax, are treated as fundamental and survive far longer than the rest, sometimes for the statutory limitation period. Everything else is general and survives for a negotiated window, commonly twelve to twenty four months. Knowing which bucket a statement lands in matters more than the wording of the statement itself.
The three limits that decide your exposure
The survival period, which is how long a claim can be brought. The cap, which is the most you can be made to pay and is often the escrow amount for general claims and the full price for fundamental ones. And the basket or threshold, below which small claims cannot be brought at all. A seller negotiating the agreement should spend their effort on those three numbers before arguing about adjectives.
The disclosure schedule is your defense
Every rep is given subject to what you disclose against it, so the schedules are where you convert problems into known facts. A pending customer dispute disclosed in the schedule is not a breach; the same dispute left out is. Sellers frequently under invest here because the schedules are dull, and it is the cheapest protection in the whole document.
Knowledge and materiality qualifiers
Adding to the best of the seller's knowledge or in all material respects narrows what you are promising, and buyers resist both. The usual landing point is that fundamental reps are given flat, and operational ones about matters you could not reasonably verify carry a knowledge qualifier with a named group of people whose knowledge counts.
Questions people ask about reps and warranties
How long am I on the hook after closing?
For general representations, typically the survival period negotiated in the agreement, commonly twelve to twenty four months. Fundamental representations and tax often run much longer, and insurance can extend cover beyond either.
Can I limit my liability to the escrow?
For general claims, frequently yes, and that is the usual shape. Fundamental representations and fraud are almost always carved out of the cap, so the honest answer is that your exposure is capped for most things and uncapped for a short, serious list.
What is a materiality scrape?
A provision that ignores materiality qualifiers when calculating damages, so a buyer can recover the full loss even though the rep only promised material accuracy. Sellers should notice it because it quietly undoes the qualifier they negotiated.
Do I still give reps if the buyer has insurance?
Yes. The representations are what the policy insures, so they get more attention rather than less. The difference is who you answer to when something is wrong.