- A representation is a statement of fact about the business, made at a specific point in time — usually as of signing, and often again as of closing — to induce the other party to enter…
- A warranty is a contractual promise that a state of facts is (or will be) true.
- The parties negotiate which specific categories of reps will appear, and the seller prepares a disclosure schedule that carves out known exceptions to each broad statement.
Almost every business purchase agreement in Ontario contains a long section — often the longest in the document — headed "Representations and Warranties." It's dense, repetitive, and easy to skim past. It's also one of the most important sections in the entire agreement, because it's where risk actually gets allocated between buyer and seller.
Representations and warranties are the mechanism that lets a buyer rely on the seller's word about the state of the business — and that gives the buyer a contractual remedy if that word turns out to be wrong. This article explains, in plain language, what a representation and a warranty actually do, and how they function through the life of a deal.
What a Representation Actually Is
A representation is a statement of fact about the business, made at a specific point in time — usually as of signing, and often again as of closing — to induce the other party to enter into (or complete) the agreement. "The business has no undisclosed material litigation" is a representation. If it's false when made, the party who relied on it may have a remedy.
What a Warranty Actually Is
A warranty is a contractual promise that a state of facts is (or will be) true. A breach of warranty is treated as a breach of contract, giving rise to a claim for damages under the agreement itself — generally without needing to prove the same kind of inducement or reliance that a pure misrepresentation claim can require.
Why Purchase Agreements Bundle the Two Together
Modern agreements almost always use both words together — "represents and warrants" — precisely so the party relying on the statement doesn't have to fight later over which legal category applies. The real protection doesn't come from arguing common-law categories after the fact; it comes from the agreement's own indemnification mechanics, which spell out exactly what happens if a rep or warranty turns out to be false.
How Reps and Warranties Work Through the Life of a Deal
- Negotiation and drafting. The parties negotiate which specific categories of reps will appear, and the seller prepares a disclosure schedule that carves out known exceptions to each broad statement.
- Signing. Reps are typically made "as of the date of this agreement" — a snapshot of the business at that moment.
- Closing. Many agreements require the reps to be true again as of the closing date — sometimes called a "bring-down" — occasionally structured as an actual condition the buyer can rely on to walk away if a rep is no longer accurate.
- Post-closing. If a representation turns out to have been false, the buyer's remedy usually runs through the agreement's own indemnification provisions rather than a freestanding lawsuit for misrepresentation — though survival periods and indemnity caps, negotiated elsewhere in the agreement, limit how long and how much can actually be claimed.
What Happens When a Representation Turns Out to Be False
The buyer typically brings an indemnity claim under the purchase agreement, often looking first to a holdback or escrow — a portion of the purchase price set aside after closing specifically to secure claims like this. Purchase agreements commonly specify how disputes over a claim get resolved: financial disagreements, such as a working-capital adjustment, are often referred to an independent accountant, while other disputes may go to arbitration or litigation, depending on how the agreement is drafted.
Reps Are Not a Substitute for Due Diligence
It's tempting to treat a long list of seller representations as a safety net that makes independent investigation less urgent. That's a mistake. Reps and warranties shift risk contractually, after the fact — they don't replace the buyer's own homework before signing. Standard due diligence still covers the corporation's records and minute book, financial statements, material contracts, leases, employee records, intellectual property, licences and permits, litigation history, environmental matters, insurance, and tax compliance. A strong set of representations is meant to back up thorough diligence, not stand in for it.
Frequently asked questions
Is a representation the same thing as a guarantee that nothing will go wrong?
No. A representation is a statement about facts as they exist at a given point in time — it doesn't promise the business will perform well in the future, and it doesn't cover risks the parties have specifically addressed elsewhere, such as ordinary market or industry risk the buyer is taking on by doing the deal at all.
What's the difference between a representation being "false" and simply incomplete?
In practice, both can trigger a breach if the representation was meant to be complete and accurate. That's why disclosure schedules matter so much — they're where a seller narrows a broad, general representation down to what's actually true, exception by exception.
Can a seller limit their exposure for a representation instead of removing it entirely?
Yes. Sellers commonly qualify representations with knowledge or materiality language ("to the seller's knowledge," "in all material respects"), and negotiate caps and survival periods that limit how much can be claimed and for how long. These qualifiers are heavily negotiated for exactly this reason.
Do buyers make representations too, or is it mostly the seller?
Both sides make them, but the lists aren't symmetrical. The seller's list is typically much longer, because the seller holds almost all the pre-closing information about the business. The buyer's representations tend to focus on narrower things — its authority to sign, and its ability to actually complete and pay for the transaction.
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