What is a survival clause?
What type of survival provisions are there?
In what context is it used and what should you know about it?
In this article, we will break down the concept of the survival clause so you know all there is to know about it.
We will provide you with its legal definition, tell you why it is used, when it should be used, types of survival clauses you may see, for how long they last and their survival period, court interpretations and more.
Keep reading as we will give you a whole new appreciation of the survival clause.
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Let’s do this.
Survival clause explained
According to Thomson Reuters’ Practical Law, a survival clause is a:
clause that extends the effectiveness of certain provisions, such as representations, warranties, and covenants beyond the expiration or termination of the agreement or the closing of the transaction, but not beyond the legally prescribed statute of limitations period
What is a survival clause?
A survival clause or survival provision is a contractual clause allowing the parties to mutually agree to maintain the enforceability and legally binding status of certain contractual obligations past the expiration, termination or completion of the contract.
As the name implies, the “survival” clause is a clause that allows another clause to survive post-termination.
By default, then a contract ends or expires, the obligations of the parties will extinguish for the future.
However, using a survival clause, you can extend the lifespan of certain elements of your contract even beyond the contract expiration.
The net effect of a survival clause is that the parties remain legally obligated to one another even after the contract has ended.
Why use a survival clause?
Using the survival clause, you can essentially agree to have any contractual clause maintain its legally binding status and enforceability even after the expiration of the contract.
In some situations, companies and individuals have a commercially justified objective of extending contractual obligations past termination.
For instance, you may want the following contractual obligations to survive contract expiration:
- Warranties and representatives
- Indemnification clause
- Limitation of liability clause
- Hold harmless clause
- Governing law clause
- Choice of forum clause
- Intellectual property rights clause
- Insurance clause
Survival clause in contracts
It happens quite often that you’ll spot a survival clause in your contract.
You’ll generally see survival clause in the following types of contracts:
- Non-disclosure agreements
- Acquisition contracts
- M&A transactions
- Product development contracts
- License agreements
- Employment agreements
- Partnership contracts
When you encounter a survival clause, it’s important to properly assess its scope to ensure that you understand your post-termination obligations towards your contracting partner.
Let’s look at different types of survival clauses you may come across.
Survival clause types
General survival provision
A general survival provision or a broad survival clause is a type of provision that makes a general statement about the survivability of terms and conditions that due to their nature should survive the end of the contract.
The parties hereby agree that the terms and conditions of the present contract shall survive the termination to the extent necessary for the enforcement of the parties rights and obligations
The generality of this clause can lead to interpretation issues and contractual disputes.
It can be risky to leave the parties to deduce the scope of the survival term or perhaps leave it to a judge to establish.
Specific survival clause reference
A contract survival clause can also directly point to a specific section of the contract or a paragraph to indicate that only that specific element of the contract will survive past termination.
This is useful when your contract is lengthy.
The Parties’ obligation as outlined in Section 25 of the present Agreement shall remain in full force and effect following the termination of the present Agreement for any reason or cause
With these types of survivability clauses, you must pay attention to the proper referencing to ensure you have the right provision to survive the contract expiration.
Although this appears to be a small tweak, it can have a significant impact on the rights of the parties following the termination of the contract.
Standalone survival provision
A contract provision can be drafted in such a way that it provides its own “standalone” survival terms and conditions.
This technique is used to override the obligations stemming from the survival clause within a specific provision.
Notwithstanding anything to the contrary in the present Agreement, the Parties’ confidentiality obligations outlined in this provision shall survive the termination of the present contract for an indefinite term
Essentially, you are saying that regardless of what has been agreed in the main survival clause, the confidentiality obligations must survive past the end of the contract indefinitely.
Survival clause by their nature
Some parties will scope their survival clause to indicate that the terms and conditions of the contract will survive depending on their nature.
This is similar to a general survival provision where the actual scope of the clause is left for a judge to interpret in the event of a dispute.
The best practice is to avoid making broad and general statements in a contract.
The more specific you are, the more you increase your chances of being able to enforce the terms of the survival clause.
Here is an example of such a clause:
The parties agree that those provisions that by their nature are intended to survive the termination of this agreement shall survive the termination notwithstanding the cause of termination
Survival clause duration
In this section, we’ll look at the survival clause and for how long they obligations survive past the termination of the contract.
Will an obligation survive for 30 days, 1 year, 10 years or even perpetually?
Survival for a specific period
The survivability clause can remain enforceable and binding for a specific period of time following the completion of the obligations in the contract.
This type of provision is generally used to ensure that certain rights remain enforceable for a period long enough to allow a party to exercise legal rights or remedies should they discover legal issues or be faced with legal issues after the contract termination.
Sections 3, 4, 6, 9 to 14 of the present Agreement shall survive for a period of three years following the termination of this contract notwithstanding the cause of termination
Basically, with this clause, the parties are keeping certain rights and obligations enforceable for an additional period of 3 years past the end of the contract to ensure they can enforce those provisions during a typical three year period coinciding with a generic statute of limitations timeframe.
Survival linked to an event
Sometimes, the parties intend for certain contractual clauses to survive termination until the occurrence of an event.
This can be seen quite often in non-disclosure agreements.
The obligations of the parties contained in the present NDA shall survive for an indefinite period of time or until the Confidential Information is no longer considered “confidential” as per the terms herein or is in public domain
In this example, the parties are stating that the confidentiality obligation should survive indefinitely or the information is no longer “secret” or “confidential” as per the terms of the contract.
Indefinite survival term
A survival clause can even provide that certain obligations must survive indefinitely.
This sounds extreme but it does have merit (in some cases and not all).
This type of provision can be enforceable when a party shares trade secret information with another and requires that the other contracting party protect and preserve the trade secret perpetually.
This can be enforceable as the courts do recognize that protecting trade secrets is a legitimate commercial concern.
In other cases, it may not work.
For example, if you enter into a non-compete agreement with an employee and require the non-compete obligation to remain in force perpetually, you’ll have little chances to enforce that in court.
Here is an example of a survival clause with an indefinite term:
The provisions 8, 9 and 10 shall survive the expiration of the present Agreement for an indefinite period of time and the Parties hereby acknowledge that the survival of these provisions represent an essential consideration to enter into the present Agreement
Every state or jurisdiction will interpret the survival clause differently.
For example, in the state of Delaware, the courts have considered that a survival clause presents a statute of limitations on the parties.
The courts in New York and California are also known to restrictively interpret the survival clause whether or not it can shorten the applicable statute of limitations.
If the parties have specifically provided that certain clauses will survive for a specific period of time, it can be interpreted that past that period, the parties no longer intended those provisions to survive.
This can have a significant impact on your legal position if your remedy or legal right was primarily contractual as opposed to statutory.
Depending on the law governing your contract, the same clause may be legally interpreted in different ways.
Parties to a contract can avoid interpretation challenge pitfalls by using clear contract language to define the survival obligations.
For example, if you want to have a clause survive for 5 years past the terminate, make sure:
It does happen that the parties do not clearly define how a contract ends to clearly mark the beginning of the survival obligation count-down.
For example, in certain M&A due diligence transactions, the parties may indicate that the term of their NDA is until the parties cease negotiating with one another.
This is problematic as the parties may not interpret the end of the negotiations the same way.
Statute of limitation concerns
What does it mean to have a survival clause in your contract?
If you state that certain rights survive within 3 years past the expiration of the contract, does it mean that you must notify your rights to the other party within 3 years or file a lawsuit within 3 years?
The survival clause can be interpreted by some courts as a statute of limitations to bringing a claim against another while some other courts consider that the parties cannot shorten the statutorily defined statute of limitations period to file a lawsuit.
In the US, some states allow for a breach of contract claim to be filed up to 6 years pas the event of the breach.
What happens if the parties had agreed to a survival clause of 3 years?
These are legal concerns that must be evaluated on a case by case basis.
Survival clause examples
Survival clause real estate contracts
You can use a survival clause in a real estate contract.
The typical survival clause in real estate contracts will relate to the representations, restrictive covenants and warranties of the parties with respect to the property being sold relating to title, quality and the like.
For example, if a party is aware of a defect but does not disclose it to the buyer, that can result in a legal claim against the vendor.
Survival clause sales contracts
The survival clause in a sales contract is quite common.
Typically, you’d want payment obligations to survive past the full execution of the contract.
For example, a seller who delivers the goods in full is entitled to receive full payment.
Whether the seller grants the buyer credit financing or not, the seller wants to make sure that the payment obligations remain legally binding and enforceable on the buyer.
Survival clause NDA
Survival clauses are used in non-disclosure agreements or NDA to ensure that the parties’ confidentiality obligations survive past the term of the NDA.
It’s important to have confidentiality provisions survive the termination of an NDA.
For example, an organization may enter into an NDA with another for joint venture discussions, an acquisition, a merger or even to develop something proprietary.
In that case, the parties may exchange valuable information to one another considered being trade secrets.
To protect its trade secret information, a company may indicate that the NDA will have a term of 2 years but certain aspects of the confidentiality provision will remain in effect for many years after the NDA or even indefinitely.
What is a survival clause in real estate?
Some real estate transactions are simple while others can be quite complex.
The survival provision can be used in real estate to ensure that the seller’s representations and warranties to the buyer survive even past the closing of the transaction.
The seller may make statements, representations and give warranties to entice a buyer to purchase a real estate property.
Due to the parties’ inequality in the information available, buyers will generally require that the seller’s representations and warranties survive the closing for additional protection.
Do limitation of liability clauses survive termination?
The general rule is that the limitation of liability clause does not survive the termination of the contract unless it is expressly intended by the parties.
Contractual obligations are legally binding and enforceable for the entire term of the contract.
For example, if a contract has a three-year term, the limitation of liability clause will be valid for any claims resulting from or caused during that three-year term.
Normally, the obligations of the parties will be extinguished when the contract expires.
However, you can have the limitation of the liability clause survive pas the termination of the contract is specifically drafted as such.
Should representations and warranties survive termination?
There are many instances where the representations and warranties given by a party represent an important and significant consideration for another party to contract.
Most often, we’ll see parties requiring that the representations and warranties provisions survive past the completion of the contract when the obligations are executed in a very short timeframe or instantaneously.
For example, if you purchase a business on the basis of the representations and warranties of the seller that they fully and exclusively own their intellectual property rights, you’d want such representations and warranties to survive past the closing of the acquisition transaction.
Should the buyer receive an injunction or a third-party claim alleging IP infringement, then the buyer can exercise legal recourses against the seller.
For how long obligations survive past termination of the contract?
There is no cookie-cutter answer to this question.
It depends on how the contract is worded.
If the survival provision states that the obligations survive for 3 years, then it’s clear.
What about if the survival clause says that the confidentiality obligations shall survive perpetually unless the information is no longer confidential, a trade secret or privileged?
In this case, there is no clear answer as to how long the confidentiality obligation will survive past the termination of the contract.
To ensure you are well-protected, you should consider what type of obligation you want to extend beyond the contract termination, what marks the end of the contract and for how long the provision should survive.