The Buyer Wants Representations and Warranties You Aren't Sure About: Decision Tree

Why this matters

The purchase agreement's representations and warranties section is where a seller signs statements of fact about the business, that the financials are accurate, that there is no undisclosed litigation, that all licenses are current, that equipment is in the condition represented. Signing a representation you are not actually confident is true is not a formality, it is a legal statement that can expose you to a claim after closing if it turns out to be false, regardless of whether you meant to mislead anyone. Getting this section right protects you as much as it protects the buyer.

Start here: never sign a representation you have not actually verified

The instinct under deal pressure, especially late in a long negotiation when everyone wants to close, is to sign whatever the buyer's attorney drafted just to keep momentum. Resist this. Every representation is a statement you may have to stand behind years later, and the fix is almost always available: qualify it, narrow it, or disclose the exception, rather than sign something you are not sure is true.

Step 1: identify exactly which representation is the problem

• If the representation is broader than what you can actually confirm (a blanket statement that "all equipment is in good working condition" when you know a specific piece needs attention), the fix is scope, not refusal. Narrow the statement or attach a disclosure schedule listing the known exception.
• If the representation asks you to confirm something you genuinely do not know (whether every past employee classification was correct, whether every permit was ever properly filed), say so directly to your attorney rather than guessing at an answer. A represented fact you are unsure of is exactly the kind of thing that needs verification before you sign, not optimistic assumption.
• If the representation is about future performance rather than a fact about the past or present (a guarantee that customers will stay after closing, that revenue will continue at current levels), this is a red flag structurally. Sellers should generally not represent or warrant things outside their control after the sale closes, since you have no ability to guarantee post-closing outcomes.

Step 2: use a disclosure schedule instead of a flat refusal

• If you know of a specific exception to an otherwise accurate representation (a pending dispute, a piece of equipment needing repair, a lease clause worth flagging), the standard tool is a disclosure schedule attached to the purchase agreement, listing known exceptions to each representation rather than making the representation itself false. This lets you sign an honest, qualified statement instead of either a false blanket statement or an unproductive standoff over refusing to represent anything at all.
• If you are not sure whether something qualifies as an exception worth disclosing, disclose it anyway and let your attorney and the buyer's attorney work out its materiality. Under-disclosing to avoid an awkward conversation is a far worse outcome than over-disclosing something that turns out not to matter.

Step 3: negotiate the survival period and cap on liability

• If a representation later turns out to be inaccurate, most purchase agreements define how long you remain liable for a breach (the survival period) and a cap on how much you could owe (often tied to a portion of the purchase price, sometimes held back specifically for this purpose). Confirm these terms exist and are reasonable before you focus energy on the wording of individual representations, since a fair survival period and cap limit your real exposure even on a representation later found imperfect.
• If the buyer proposes an unusually long survival period or no cap at all on your liability, push back through your attorney. This is a standard, negotiable term, not a fixed industry default, and an open-ended, uncapped exposure on a representation is a meaningfully different risk than a time-limited, capped one.

Step 4: decide when to bring in your attorney rather than negotiating it yourself

• If you are being asked to sign anything you are not confident is entirely accurate, stop and involve your own transaction attorney before responding to the buyer's side at all, even informally. A verbal assurance you give the buyer directly, "don't worry, that's fine," can complicate your attorney's ability to later qualify the same point in writing.
• If the buyer's attorney pushes back on a reasonable qualification or disclosure, let your attorney handle that negotiation. This is a normal, expected part of the process on both sides, and a buyer's attorney pushing for broader representations than you are comfortable with is doing their job, just as your attorney narrowing them appropriately is doing theirs.

Recap: the order to work it

1. Never sign a representation you have not personally verified, regardless of deal momentum.
2. Identify whether the fix is narrowing scope, disclosing a known exception, or flagging a structurally inappropriate ask (like a future-performance guarantee).
3. Use a disclosure schedule to list known exceptions rather than leaving a broad representation false.
4. Confirm the survival period and liability cap are reasonable, since they bound your real exposure.
5. Loop in your own attorney before responding to any representation you are not fully confident in.

References

• American Bar Association (ABA), model representations and warranties in business purchase agreements
• U.S. Small Business Administration (SBA), understanding seller obligations in a business sale
• See related: What Happens to Warranty and Service Agreement Obligations After a Sale, The Earnest Money and Letter of Intent Basics