The Exit Toolkit · Sheet 12 of 20
Warranties vs indemnities
A seller's guide to limiting liability
Warranties
Statements of fact about the business. If untrue and the buyer suffers loss, they may claim damages, but they must prove the loss and mitigate it.
Indemnities
A promise to repay a specific loss pound for pound if a known risk materialises: no need for the buyer to prove much. Far more dangerous for you, so resist them except for genuinely identified risks.
The tax covenant
A standard indemnity-style promise covering tax relating to your period of ownership. Ask for upside protection too: if the buyer later receives a tax refund for your period, it comes to you.
Cap your liability
Negotiate an overall cap (often linked to the price), a de minimis so trivial claims are ignored, and a basket so small claims only count once they add up.
Time limits
Commercial warranty claims are commonly limited to around two years; tax typically longer. After that, you are free.
Knowledge and disclosure
Qualify warranties by your awareness where you genuinely cannot know, and remember: full disclosure in the disclosure letter defeats a warranty claim entirely.
Bottom line
From a buyer's side the aim is maximum comfort; from yours, a clean exit. The negotiation is about where the risk of the unknown sits. Everything here is negotiable.
General information only, not legal advice. Steven Mather Solicitor is a trading name of Kesters Nook Limited; legal work is carried out through Nexa Law Limited, authorised and regulated by the SRA (number 633024).