Survival of Representations and Warranties Clause: What Does it Mean?

By September 26, 2016Uncategorized

In the real estate legal world, lawyers love to add a clause to contracts at the end of the representations and warranties section that states something like “these representations and warranties will survive for [insert time period].”  The time period is usually something between 6 months and 2 years.  Unfortunately, this phrase is a little unclear.

To be honest, this phrase has never made sense to me.  Representations and warranties are made as of a certain fixed point in time.  Generally, this point in time is the date the contract is made, but may also include a reaffirmation on the closing date.  To say the representations survive for a year, does that mean the representations are continuously made for the entire year?  Using the phrase’s plain meaning, you could certainly make an argument that it does.  Over time, however, the phrase has actually developed a meaning separate from its plain meaning.  The common interpretation, then, is that a claim must be made, or notice must be sent, with respect to a breach of the representations and warranties during the designated time period.

The important question, then, is what do you need to do by the expiration of this time period?  Do you need to file a claim in court or do you just need to send notice to the other party?  Unfortunately, to my knowledge, Ohio has not ruled on this issue.

The other state courts that have ruled are split.  New York and California courts, for example, provide that only notice needs to be given by the expiration of the time period.  Their reasoning is the state’s statute of limitations is very important, and unless the contract is completely clear that it is meant to trump the statute of limitations, the statute of limitations rules.  Delaware courts, on the other hand, provide that the phrase limits the statute of limitations to the stated time period, so the party must file a suit.

Ultimately, it is impossible to predict how an Ohio court will come out.  Therefore, it’s best to clarify this point in the contract.  If you do not, you should assume the court will come out the way that is worst for you or your client.

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