Are Standard Representations and Warranties Included in a Commercial Real Estate Contract?

Representations and warranties are always a matter for negotiation. Their scope and duration depend on the compromises of the parties. The seller wants the most limited scope, and the buyer wants the broadest representations available. Often the seller drafts a contract without the reliance of any representations or warranties. The commercial real estate agreement says, "the property is being sold 'as is'. Seller makes no representations or warranties." When a seller is making representations and warranties, the seller’s lawyer may insist on adding the cautionary words, "to the best of seller’s knowledge." That way, the seller is not guaranteeing unknown facts or conditions.

If you are buying income-producing property, your lawyer may want the seller to guarantee the accuracy of the rental income figures as well as the expenses the seller has represented to you. You may also want the sales contract to include a statement that the seller is aware of no hidden defects in the building. This can refer to defects that your inspector is unlikely to discover.