Including certain representations and warranties in commercial real estate agreements of purchase and sale is commonplace. Although in a hot market, the nature and extent of such representation and warranties become more and more limited. Without representations and warranties, the purchaser is at the mercy of the principle of caveat emptor[1] (let the buyer beware). Thus, purchasers include representations and warranties in commercial agreements to hold the seller accountable for false assurances that they cannot, or chose not, to fully investigate on their own[2].
Recently, we represented a client, the purchaser of a commercial building, on a matter in which we had to determine whether the seller had breached a very common representation and warranty stipulated in the executed agreement of purchase and sale. The main facts of the case were that our client bought a commercial building, and after the purchase, the client discovered that the HVAC system was deficient, as it leaked and failed to provide adequate cooling during the summer months. The representation and warranty at issue stated the following:
The Seller represents and warrants that the chattels and fixtures as included in this Agreement of Purchase and Sale will be in good working order and free from all liens and encumbrances on completion. The Parties agree that this representation and warranty shall survive and not merge on completion of this transaction.
To our surprise, there were very few cases that had considered "good working order" and those that did, did not delineate a specific standard in regards to chattels and fixtures. Rather, the case law seems to paint an ambiguous picture of this standard that largely depends on the specific facts of the case. Needless to say, we were unable to provide our client a strong opinion on his potential success in obtaining recourse.
Please log in to read the full article.