Glossary

Warranties

Statements of fact about the business given by the seller in the sale agreement, covering matters such as accounts, contracts, employees, tax and litigation. If a warranty proves untrue and the buyer suffers loss, the buyer can claim.

Written by Motion Advisory Partners. General guidance, not legal advice

In plain English

Warranties are how a buyer gets comfort that what it has been told is true. The seller qualifies them through a disclosure letter, which sets out the exceptions; anything properly disclosed cannot usually be claimed against. The seller's liability is normally limited by caps, thresholds and time limits, all of which are negotiated.

Warranty and indemnity insurance can be used to transfer some of the risk to an insurer.

Why it matters

Warranties and the disclosure process are where a seller's honesty is formalised. Thorough disclosure protects the seller; thin disclosure creates exposure.

What to watch for

  • Start the disclosure exercise early and be thorough.
  • Negotiate caps, thresholds and time limits.
  • Consider warranty and indemnity insurance for larger transactions.

Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.