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What is a “representation” in the context of a business sale agreement? Essentially‚ a representation is a statement regarding a particular fact relating to the business seller or the business that is expressed in the business sale agreement. Almost every agreement contains representations that are being made by both sides‚ the seller and the purchaser. Why is it important? The representations are not important…if they are truthful. The problem arises when the representation is found to be “less than accurate” and you receive a telephone call from your lawyer stating that the buyer is threatening a lawsuit. A common representation made in business sale agreements will sound something like this:
Except as set forth in this Agreement‚ neither Seller nor any third party is in default in any respect under the Lease and there has not occurred any event under the Lease which with the lapse of time or the giving of notice or both would constitute such a default; such Lease is the legal‚ valid and binding obligation of the Seller enforceable in accordance with its terms.
Basically‚ as a business seller‚ you are stating that there is no default in the lease nor has there been anything done that would later constitute a default. The problem arises when the buyer‚ after being in possession of the location for six months‚ finds out that the real estate taxes have not been paid in over a year and the landlord is looking to the buyer for reimbursement.
Most of the post-closing problems for a business seller arise from a representation within the agreement. Following is a list of the keys to avoiding any potential liability resulting from a contract representation:
Avoiding liability from a representation in a business sale agreement is key to closing your transaction with peace of mind. However‚ there are many other circumstances that can lead to problems for business sellers and you must be aware of all of them. For more information on avoiding liability and to learn more about other aspects related to selling your business‚ click on the icon below to get a complimentary copy of ENDWISE the guide to selling your business with peace of mind.
Category: Business Transactions
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