Warranties in corporate transactions
Warranties in corporate transactions

The following Employment practice note provides comprehensive and up to date legal information covering:

  • Warranties in corporate transactions
  • Breach of warranty

Instead of giving information to the buyer, the seller can give warranties in the sale agreement. A warranty is a statement that a particular fact is true - for example, a seller may warrant that none of the employees of the company have contractual notice periods in excess of 3 months.

Many warranties are limited in some way. The information is usually warranted 'as far as the seller is aware' or 'to the best of the seller's knowledge, information and belief'. The seller's awareness may also be limited in scope, perhaps applying only to specific situations or documents. The seller can also disclose information against the warranties, usually in the form of a disclosure letter setting out the extent to which each of the warranties is untrue ('save as disclosed...'). What constitutes disclosure for this purpose may be specified in the agreement: it could include only 'documents annexed to the disclosure letter' or 'documents contained in a disclosure bundle' or 'documents contained in a data room'. In some cases, the seller will seek to limit the warranties by informal disclosures also but the buyer should resist this.

After the due diligence process, the buyer will decide if he still wants to buy the business and will use the information he has obtained to negotiate warranties and indemnities. Warranties can also be used to obtain more information

Popular documents