Protecting acquisitions from hiding gremlins: Warranties and Indemnities – Why and What is the Difference?

03 February 2017 |

INTRODUCTION

The starting point for a buyer in most transactions is the maxim ‘caveat emptor’. Even with the precaution of a thorough due diligence though, it is possible undiscovered gremlins will surface after pen has been put to paper.  

It is accordingly reasonable for a buyer to seek protection by negotiating appropriate warranties and indemnities.

Without warranties or indemnities, unless the seller has made  misrepresentations, the buyer is at risk of having no or limited legal recourse in the event problems come out of hiding post closing.  As a result, it is common to structure sale agreements so that they include:
•  a schedule setting out a comprehensive list of warranties;
•  a schedule in which the seller has an opportunity to make any disclosures against warranties provided; and
•  indemnities.

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