Typically the preamble for the representations and warranties will state that they are made to induce the buyer to purchase or the lender to make the loan contemplated.
Material Adverse Effect: In a sale of any ongoing business, one way to address the difficulty of being absolute in the representations and warranties when in fact the parties are not concerned about the de minimis presence of hazardous materials or damages, is to define Material Adverse Effect.
Environmental Damages: This definition is a convenient place to collect all the possible liabilities and damages arising from the presence of hazardous materials on the property in violation of, or requiring remediation under, any Environmental Requirements. It can then be used in the indemnity and cost sharing provisions.
Environmental Requirements: Traditionally the term used is "Environmental Law," but "Requirements" is more accurate as the definition goes beyond statutes and regulations.
A major problem with definitions of environmental terms in commercial and real estate transaction documents is that they become overly inclusive, confusing, and unworkable. A definition of "hazardous materials" which includes virtually every substance known to man in any amount at any concentration, will be impossible to satisfy in any representation regarding the absence of hazardous materials on the property. Conversely, a representation regarding "Environmental Laws" or "Environmental Requirements" may be less than anticipated if the definition uses the "list" approach and certain key environmental laws or requirements are not included. Much clarity can be obtained in the operative provisions by using defined terms with consistent and detailed definitions. The definitions often contain the key issues in the transactions and deserve considerable attention.
A. Representations: a statement of fact to induce another party to enter into a contract.