Warranties, Undertakings and Representations
These terms are synonymous with any contract in which any transaction between a buyer and a seller, however, they are often used in the wrong terms and even more common is that they are misunderstood by the buyers and seller themselves.
Quick Definitions
Undertaking
An undertaking is a statement agreeing to do a certain act in the future. The wording of an undertaking doesn’t have to actually include the word “undertake” although it often will. Other phrases which will be tantamount to an undertaking include “shall” or “agree” for example.
An undertaking however cannot be made on the use of the words “will” or “must do”. These are because the use of the word “will” indicates that the party involved has some intention to complete a certain act rather than an obligation and “must” is ungrammatical and therefore would not be being used in its correct way.
Undertakings are sometimes referred to as a “covenant”, they mean exactly the same thing.
Warranties
A warranty is a statement which is made by a party of a current fact. The receiver of a warranty is able to hold the giver of a warranty liable if at the time that fact was not correct. An example of this can be given is if a seller in an share sale of a company tells the buyer that there is currently no staff suing the company for unfair dismissal and it turns out after the sale that there is in fact two staff who have unfair dismissal cases waiting to be heard at the Employment Tribunal.
Under common law, warrants are described as a term which doesn’t go to the heart of a contract and will only become applicable if there is proved to be a breach. If there is shown to be a breach of a warranty the affected party is able to claim damages.
Breach of warranties do not automatically entitle customers to terminate their agreements under common law, however, they may be able to if they negotiated for an express right to terminate for “material breach” was included in the contract.
Representations
A representation is a statement which may or may not be put into the contract, which is made by one party which has the effect of inducing the other party into entering into a contract.
If it turns out that the statement is not true, the party to which was induced has a claim under the Misrepresentation Act 1967 in which they will be able to rescind the contract or claim damages in tort.
You cannot use a warranty and an undertaking together, a party has to give one or the other and they should be in separate clauses. The same is true for undertakings and representations as they mean mutually exclusive things. However, warranties and representations may be used together.
Legal and Practical Consequences
A party should not use the term “warranty” unless there is no chance that the party will not have the common law right to terminate for a breach of tenancy.
