When a business is bought or sold, the agreement will usually contain a detailed set of warranties. These are contractual assurances given by the seller about the condition of the business—covering matters such as its financial position, assets and liabilities, key contracts, employees, compliance with law, and any ongoing disputes.
Buyers rely on these warranties when deciding to proceed with the transaction and in agreeing the purchase price. Although warranties are intended to allocate risk clearly between the parties, issues can arise after completion if a buyer discovers that a warranty was inaccurate or misleading. If the business does not match what was promised in the agreement, the buyer may bring a claim for breach of warranty to recover financial loss.
What to do in a potential warranty claim
If you suspect that a warranty has been breached, taking prompt and careful action is essential.
- Review the contract immediately – start by reviewing the agreement itself, including any schedules and disclosure letters. The exact wording of the warranty, as well as any limitation clauses and time limits, will determine your position
- Check the time limit – many breach of warranty claims are subject to strict contractual deadlines — sometimes as short as 12 or 24 months from completion. Missing the notification deadline can prevent recovery altogether
- Preserve evidence – gather relevant documents, financial records, correspondence and any information demonstrating the inaccuracy and the loss you have suffered. A clear evidential foundation strengthens both negotiations and litigation
- Avoid informal admissions or confrontation – it can be tempting to raise the issue immediately in strong terms. However, premature or informal communication may inadvertently weaken your position. Strategic handling from the outset is important
- Take early legal advice – a solicitor experienced in breach of warranty claims can assess the strength of your case, ensure compliance with notice provisions, and advise on the most effective recovery strategy. Early advice often significantly improves the outcome.
What compensation is payable in a warranty claim?
The primary remedy for a breach of warranty claim is damages (financial compensation) which is intended to place you in the position you would have been in had the warranty been true.
In the context of a business acquisition or share purchase agreement, this often involves assessing:
- The difference between the value of the business as warranted and its actual value
- The impact of undisclosed liabilities or inaccurate accounts
- Losses flowing directly from the breach
- The wider financial consequences of the inaccuracy
Calculating damages can require detailed valuation analysis and, in many cases, expert accountancy evidence. A carefully prepared assessment of loss can significantly strengthen your negotiating position or court case.
Many commercial contracts will include provisions that affect breach of warranty claims. These may include limitation of liability, time limits for bringing a claim, set-off provisions, notification requirements, de minimis requirement (minimum value for a claim to be brought) and/or basket provision (this sets an overall financial threshold that must be exceeded)
How we can help
Our dispute resolution team can assist on all aspects of breach of warranty disputes which include:
- Drafting and serving letters of claim
- Quantifying loss with expert support
- Exploring settlement options either through direct negotiations or mediation
- Assisting with and representation in relation to expert determinations (usually in relation to completion accounts or valuations)
- Representation in High Court or Arbitration proceedings
Find out more about the team
