The sale agreement gets the attention. The disclosure letter decides what a seller is actually exposed to, and it is routinely treated as an administrative annex to be finished at the last minute — which is exactly backwards.
Warranties, Indemnities, and the Difference That Matters
A warranty is a statement of fact about the business given by the seller in the agreement — that the accounts are accurate, that there is no litigation, that the company owns its assets, that employment terms are as disclosed — running through a schedule that is frequently many pages long. If one is untrue and the buyer suffers loss, the buyer may have a claim. That is personal exposure continuing after completion, which is why the schedule deserves reading rather than skimming: every line is something you are standing behind. An indemnity is a different and harder animal. Rather than a statement of fact, it is a promise to reimburse — typically covering a specific identified liability if it arises, without the buyer needing to establish loss in the same way. Indemnities are normally reserved for known or suspected risks: a live dispute, a Revenue matter under query, an environmental or title problem. From a seller’s perspective the important discipline is scope: any indemnity should be drawn tightly to the specific matter, with a cap and a time limit, rather than left open. A broad indemnity is the single heaviest obligation a seller can sign.
The Disclosure Letter, and the Four Limitations
The mechanism is simple and enormously consequential: matters properly disclosed in the disclosure letter are generally carved out of the warranties. A warranty says “there is no litigation”; the disclosure letter says “except the following”, and the buyer cannot then claim in respect of what they were told. So the seller’s exposure is defined not by the warranty schedule but by the quality of the disclosure — which makes the hours spent on it the best-value hours in the transaction, and makes leaving it to the final days a genuine mistake. Alongside it, four limitations worth negotiating as a matter of course rather than as aggression: a cap on total liability, so exposure is a defined figure and not open-ended; time limits, so claims must be brought within a specified period after completion, with the period for tax-related warranties commonly longer than for general commercial ones; a de minimis threshold so trivial claims cannot be brought, usually with an aggregate threshold to be exceeded before any claim at all; and conduct provisions, giving the seller notice of and some say in handling any third-party claim that might trigger a warranty claim. Those four are the difference between a bounded exposure and an unbounded one. And the reassuring part: most well-prepared owner-managed sales complete and are never revisited. What produces claims is an unread schedule, hurried disclosure, and problems that were never surfaced — all within the seller’s control.
Been Sent a Warranty Schedule?
It is worth going through properly, line by line, alongside the disclosure exercise - because what you disclose now is what you are not liable for later.
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