A key element in any business sale negotiation and sale agreement is the settling of warranties, representations and indemnities. These can vary from a few sentences to many pages and, if not treated with appropriate respect, can lead to unexpected dramas and financial headaches long after the deal has been done.

In part 1 of this article we looked at the differences between the three, but in this post we will consider what to think about when negotiating these issues.

In settling the terms of the agreement, the parties need to think carefully about what they will agree to, particularly when the pressure is on to complete the deal. Often the parties will find themselves up against a time constraint at the end of the deal timetable and the temptation is there for the Seller to accept an onerous indemnity when the cash is tantalisingly close or for the Buyer to concede important warranty safeguards to get the deal across the line.

In settling these matters the parties need to keep the following in mind:

Sellers should consider:

  • Should the clause be agreed and inserted into the sale agreement at all? Some warranties may be completely unacceptable – why give a warranty if the Buyer has already chipped the price because of the issue?
  • Who will actually give the warranty/representation/indemnity? Seller only, or add in directors and management who know the operations?
  • Has a clear disclosure been made against any possible breach? It is rarely a good idea to be ambiguous in disclosing any information that may show an existing breach. The purpose of disclosure is to identify information that may be a breach of a warranty and having disclosed the warranty is thereby restricted – but only to the extent that the disclosure actually does disclose.

For buyers:

  • Are the right persons giving the warranty/representation/indemnity? If key information is given by a party who is not the Seller, should they also be party to the agreement?
  • Are the clauses suitably wide enough and deal with any concerns? If a Seller is insistent on giving “minimal” warranties – there may be no meaningful protection at all.
  • Due diligence should not be forgone in favour of warranties. Warranties may keep costs in check, by choosing to rely on them, but being in possession of the facts before proceeding can save a lot of wrangling (and costs) if there is a dispute post completion.
  • Are the disclosures too ambiguous? Don’t let a Seller cloud the truth of a situation by giving a vague response on something that could be serious and costly.


The final safeguard for the seller in settling terms of a sale,  is the critically important limitation clause. Having given a warranty, representation or indemnity and having disclosed against them there is still a risk of a claim; the limitation clause seeks to minimise the overall liability in three principle ways:

Time based: the seller may limit the period within which a claim may be made by the buyer. This may be 12 to 24 months, but longer for tax matters. In the absence of a limitation clause, statutory limitations will apply running for 6 or possibly 12 years.  That’s a long time for the seller to worry about potential claims.

Maximum value: the seller may limit any claim to the total amount received by the seller or limited to a lesser sum. Without a limitation there may be no cap on total liability, which potentially could far exceed the sum received by the Seller [see our article on the potential horrors of failing to cap: https://www.stephens-scown.co.uk/corporate-commercial/limit-liability/]

De minimis: the seller can impose a minimum threshold before a claim can be made. This will generally reflect a percentage of the overall value of the deal. This helps to prevent trivial matters being raised.