Representations and warranties (R&W)

Definition

R&W form the legal backbone of an SPA. Typical blocks: corporate (share title, no enforceable claims), financial (accounts accurate, no hidden liabilities), commercial (top customers/contracts represented correctly), legal (no pending or threatened claims), tax (all taxes paid, no open disputes with revenue), environmental (no undisclosed contamination), HR (key employment contracts correct, no pension shortfalls), IP (ownership of trademarks, patents, software).

Each R&W has a "survival period" — typically 12-24 months for general R&W, 5-7 years for tax and environmental, and some fundamental R&W (title) carry no expiry. Damages are capped: typically 10-25% of price as ceiling, with a "basket" (€20-50k minimum threshold before any claim) and "de minimis" (€2-5k per individual claim). Since 2020 R&W insurance has gained share in Benelux mid-market deals — seller gives lower direct liability in exchange for a premium of 1-1.5% of insured amount.

When it matters

In EVERY SPA above €1m EV. The R&W section is typically 30-50% of the SPA pages and the most important negotiation space after price itself. Poor preparation here costs sellers an average of 5-15% of value via extensive caps the buyer extracts.

Frequently asked

What's a typical R&W survival period?

General R&W: 12-24 months. Fundamental R&W (title, capacity): often unlimited. Tax R&W: 5-7 years (follows tax statute of limitations). Environmental R&W: 5-10 years or longer depending on risk. Negotiate survival periods per block, not uniformly.

How high is the typical damage cap?

10-25% of purchase price for general R&W. For fundamental R&W often 100% of price (a title claim can erase the full value). Below the general cap: a "basket" threshold (€20-50k minimum) and de-minimis floor (€2-5k per claim) keep small matters out of the claim procedure.

What is R&W insurance and when is it worth it?

Insurance that shifts R&W liability from seller to insurer (premium 1-1.5% of insured amount). Useful in deals above €10m EV where the seller wants clean-exit certainty, or in multi-shareholder situations. The insurer runs its own DD and only then issues the policy.