Corporate Disposal Warranties & Indemnities Solicitors

What are warranties?

Warranties are statements made by a seller regarding the condition of their business and the existence of any liabilities. An agreement will usually contain a schedule of warranties covering almost every part of the business, including accounts, assets, contracts, property, litigation, regulatory matters and employees.

If a warranty turns out to be untrue, a buyer may have a claim for damages for the loss it has suffered. Warranties are not, however, a substitute for thorough due diligence.

To avoid warranty schedules becoming extremely lengthy, a seller will qualify the warranties in a separate document known as the Disclosure Letter. Where disclosures reveal a liability that the buyer would assume they can request an indemnity from the seller in respect of that liability.

What are indemnities?

Indemnities are undertakings made by a seller to meet a specific potential legal liability which a buyer may incur following an acquisition. An indemnity would entitle the buyer to a payment if the event giving rise to the indemnity takes place. Unlike breach of warranty claims, the buyer does not need to show they have suffered loss before relying on the indemnity.

It is important to be aware of the difference between a warranty and an indemnity. A warranty is a contractual statement made by the seller regarding the state of the target business and an indemnity is a promise to indemnify, i.e. to reimburse the purchaser in respect of a specific liability if it arises.

Limiting liability

Our commercial solicitors can also assist vendors in limiting their liability through various means such as negotiating the deletion of certain warranties and indemnities or negotiating changes in wording to reduce their scope. Qualifications can be added such as like time periods, limiting the maximum liability under the warranties and adding a minimum threshold for claims. Vendors should also make ‘deemed disclosures' of matters that do not need to be specifically stated, such as all problems shown in the accounts.

Call Business Lawyers Direct today on 0845 371 0701 or contact us via our online enquiry form and one of our senior solicitors will be pleased to discuss your requirements.