Ask most people what an M&A deal is a negotiation about and they will say price. Price is settled early, usually in a term sheet or heads of terms, and then barely moves. The real negotiation — the one that decides who is out of pocket if the business turns out to be different from what was described — happens in the warranties and the disclosure letter.

What warranties do

Warranties are statements the seller makes about the business: that the accounts are accurate, that there is no undisclosed litigation, that the company owns its assets, that it complies with its licences, and so on. If a warranty turns out to be false and the buyer suffers loss as a result, the buyer may have a claim against the seller. Warranties therefore do two jobs: they flush out information (a seller will not warrant something untrue) and they allocate risk (if it is warranted and wrong, the seller bears it).

What disclosure does

Against the warranties sits the disclosure letter, in which the seller qualifies the warranties by revealing what is actually the case. If the seller discloses a piece of litigation, the buyer cannot later claim under the “no litigation” warranty for that matter — it knew. Disclosure is the seller’s shield. The negotiation over what is “fairly disclosed”, and whether the data room counts as disclosure, is one of the most consequential in the deal.

The limitations that quietly decide everything

Even a valid warranty claim runs into the limitations section: caps on the seller’s total liability, thresholds and baskets below which no claim can be made, and time limits within which claims must be brought. A buyer can win the warranty argument and still recover little if the caps and time bars were drafted in the seller’s favour. This is unglamorous drafting that decides real money.

Why it pays to slow down here

  • Buyers: a warranty is only as good as the seller’s ability to pay a claim. Consider whether you need retention, an escrow, or warranty and indemnity insurance.
  • Sellers: disclose properly and specifically. A thorough disclosure exercise is the best protection you have, and a vague one is an invitation to a claim.
  • Both: the schedules are not boilerplate. They are the deal. The team that drafts them should be the team that knows how they get litigated — which is why our disputes partners sit alongside the deal team.

General commentary, not legal advice. Every deal is different — talk to us early, before the heads of terms lock in a position that is hard to unwind.