Understanding Representations, Warranties, and Covenants in Healthcare Transaction

This post is part of Mooradian Law’s ongoing blog series on healthcare transactions.

At the heart of every well-structured purchase agreement are three foundational elements: representations, warranties, and covenants. These provisions allocate risk, encourage transparency, and ensure alignment between parties from signing through post-closing operations.

Representations & Warranties: What’s True at Signing

Representations are factual assertions made to induce the other party to enter into the agreement. Warranties are assurances that those facts are, and will remain, true—often accompanied by a remedy if they’re not. In practice, these are typically bundled together as “reps and warranties,” though they technically carry slightly different legal implications (e.g., tort vs. contract).

Typical Areas Covered:

Corporate authority and good standing.
Accuracy of financial statements.
Absence of undisclosed liabilities or pending litigation.
Validity of material contracts and licenses.
Compliance with applicable laws and regulations.

In healthcare transactions, representations and warranties often include:

Valid and unrestricted licenses to operate (facility and/or individual professional).
Good standing with Medicare, Medicaid, or commercial payors.
No violations of HIPAA, Stark Law, or Anti-Kickback Statute.
Absence of regulatory audits or investigations.

These provisions serve not only to disclose key facts, but also to allocate risk between buyer and seller. If a representation turns out to be inaccurate, the injured party may have recourse—depending on how remedies are addressed elsewhere in the agreement (a topic we’ll tackle in our next post on indemnification).

Covenants: Promises About Future Behavior

While representations and warranties focus on the present (or past), covenants govern what parties agree to do—or not do—after the agreement is signed.

These promises can be operational, transitional, or restrictive, and are particularly important when the parties’ obligations continue beyond closing.

Examples Include:

Restrictive covenants, such as non-compete or non-solicitation clauses.
Transition services or ongoing cooperation for regulatory filings.
Delivery of final reports, consents, or disclosures post-closing.

In healthcare transactions, covenants might also involve ensuring that certain clinical or billing practices are preserved during a transition period.

Poorly drafted or ambiguous covenants often lead to disputes—especially if remedies, enforcement rights, or survival periods are unclear.

Avoiding Blurred Lines: Disguised Covenants and Knowledge Qualifiers

One pitfall to avoid is the inclusion of disguised covenants—forward-looking promises dressed up as representations. For example, “The Seller is and will remain in compliance with all laws” appears to be a present statement, but it implies a continuing obligation. These should be drafted separately to avoid confusion around remedies and enforcement.

Another nuance - knowledge qualifiers. When a party warrants that “to its knowledge” a fact is true, the scope of that knowledge should be defined—e.g., actual vs. constructive knowledge, and whose knowledge is relevant.

Tailoring the Legal Framework to the Transaction

There’s no one-size-fits-all approach to drafting reps, warranties, and covenants. Their form and scope depend on:

The size and complexity of the deal.
Whether the parties’ motives are strategic or financial.
Industry-specific regulatory overlay.
The relative leverage of the parties.
The anticipated duration of the post-closing relationship between the parties.

In healthcare deals, this means being extra thoughtful about licensure, payor contracts, regulatory compliance, and patient data obligations.

Looking Ahead: Indemnification in Transactions

In our next installment, we’ll unpack indemnification—the mechanism that translates reps, warranties, and covenants into enforceable financial protection.

At Mooradian Law, we help clients structure, negotiate, and close transactions that work in the real world—especially in healthcare. Our counsel balances legal precision with business pragmatism so our clients can move forward with confidence.

Contact Mooradian Law

Email: info@mooradian.law

Phone: (734) 219-4890