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February 2017
www.gsnh.com
GSNH Real Estate Law Blog
Walter Traub, Counsel/Chair
416-597-3378

Murray Hart, Managing Partner
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Rodney Ikeda, Partner
416-597-3389

David Nakelsky, Partner  
416-597-7880

Sam Nash, Partner
416-597-3382

Ernie Gutstein, Associate
416-597-6484

Robert Jackson, Associate
416-597-3398  

Georgea Wolfe, Associate
416-597-6486

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Risk Pie, Anybody? How to Negotiate While Reducing Risk 


Negotiation - the very essence of the word often conjures up the thought of adversarial trade-offs, however, when negotiating a purchase/sale agreement parties should turn away from opposing positions. A good negotiation takes a more integrative approach, resulting in a deal that satisfies all parties.

The pitfalls of a distributive negotiation often appear when assessing risk, and negotiating the representations and warranties of an agreement.  Often, a vendor will simply seek to limit the number and scope of representations and warranties as much as possible, while a purchaser will seek to do the opposite. This tactic will see parties negotiating against each other in a zero-sum game in which they compete for the smallest slice of a fixed "risk pie". There are, however, some qualifications that vendors and purchasers can use to shrink the overall size of the pie - limiting risk for both sides simultaneously.

Knowledge and belief

By qualifying a representation or warranty with language such as, "to the best of the vendor's knowledge and belief", parties can often arrive at an agreement.  The vendor can be sure that they aren't taking on risk stemming from an unknown factor, and the purchaser can be provided with enough comfort to satisfy themselves on the issue.  A knowledge and belief qualification can be further fine-tuned to shrink the total amount of risk by taking the often overlooked extra steps to further define the qualification.  For example, parties can consider a vendor's obligation to investigate an issue, or specify the people whose knowledge is to be relied upon.

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The GSNH Real Estate Law Blog Disclaimer:

These comments are of a general nature and not intended to provide legal advice.

If you have any questions/concerns or require legal advice please do not hesitate to contact the GSNH Real Estate group at generalrealestate@gsnh.com

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