Q&As

Is it standard market practice to define in a sale and purchase agreement (whether relating to an asset or share sale) the meaning of the term 'material' when used to qualify the warranties or rather to leave it undefined in the agreement?

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Produced in partnership with Julian Henwood of Gowling WLG
Published on LexisPSL on 23/03/2017

The following Corporate Q&A produced in partnership with Julian Henwood of Gowling WLG provides comprehensive and up to date legal information covering:

  • Is it standard market practice to define in a sale and purchase agreement (whether relating to an asset or share sale) the meaning of the term 'material' when used to qualify the warranties or rather to leave it undefined in the agreement?

It is not standard market practice to define materiality for this purpose. What is 'material' in respect of one warranty will commonly be quite different in another context. For example, a warranty that a company has not, since the date of its last audited accounts 'materially increased the level of its stocks' might be better replaced by a warranty that stock levels have not risen in that period by more than 10% (or whatever figure the buyer believes to be material in the context of the relevant business). On the other hand, a warranty that all replies to due diligence enquiries are true and accurate 'in all material respects' is not readily reducibl

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