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Warranties & Indemnities UK: Business Sale Guide

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Written by Brad Askew Solicitor (non-practising)
Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice.
Updated June 2026 · England & Wales
Buying or selling a business in the UK involves far more than agreeing a price and signing paperwork. Much of the real negotiation happens around the risk allocation provisions: who carries the cost if something turns out to be different from what was described, and how those risks are quantified, limited or transferred. Warranties and indemnities sit at the heart of this. They shape how much the seller can be held to account after completion, what the buyer can recover if problems emerge, and how comfortable both sides feel signing the deal. This guide walks through how warranties and indemnities function in a UK Sale and Purchase Agreement, how disclosure letters interact with them, and the practical points that tend to cause friction during negotiation. It is written for founders, directors and buyers who want to understand the mechanics before sitting down with their advisers.

What this document is

A warranty is a contractual statement by one party, usually the seller, confirming that something about the business is true at a given point in time. If that statement turns out to be incorrect and the buyer suffers loss as a result, the buyer can bring a contractual claim for breach of warranty.

The remedy is damages, and the buyer generally has to prove the loss and show it flows from the breach. An indemnity works differently. It is a promise to reimburse the other party, pound for pound, against a specific loss or liability if it arises.

Indemnities are typically reserved for known or identified risks, such as an ongoing tax dispute, a pending piece of litigation, or an environmental concern flagged during due diligence. Because indemnities shift the burden of proof and remove the usual rules about mitigation and remoteness, they are negotiated harder than warranties and tend to be more limited in scope.

How to use this document

  1. Identify the warranties that matter. Warranties in a business sale can run to dozens of pages, covering accounts, tax, employees, property, intellectual property, contracts, compliance and litigation. Work through each block with your adviser and decide which carry real commercial weight for the deal you are doing and which are boilerplate.
  2. Prepare or scrutinise the disclosure letter. The disclosure letter is where the seller qualifies the warranties by setting out exceptions, known issues and matters that would otherwise trigger a breach claim. Sellers use it as a shield. Buyers must read it line by line and push back on disclosures that are too vague to be meaningful.
  3. Negotiate caps, baskets and time limits. Almost every SPA contains financial and temporal limits on warranty claims: a maximum recoverable amount, a minimum threshold before claims can be brought, and time windows within which claims must be notified. Tax warranties usually have longer windows than general warranties, often several years.
  4. Ring-fence specific risks with indemnities. Where due diligence turns up a known problem, pricing it into the purchase price is one option, but an indemnity is often cleaner. It shifts the identified risk back to the seller without affecting the agreed price, and it avoids the buyer having to prove a breach if the issue materialises.
  5. Consider warranty and indemnity insurance. For larger transactions, buyers and sellers increasingly turn to W&I insurance to bridge gaps between what the seller is willing to stand behind and what the buyer needs protection against. Premiums vary, and cover excludes known issues, so it is not a substitute for proper disclosure and negotiation.

Common questions

If you're dealing with this kind of situation, speak to an experienced legal adviser who can walk you through it — from £89.

Common questions

Q What is the difference between a warranty and an indemnity?
A warranty is a contractual statement that something is true. If it turns out to be false and causes loss, the buyer can sue for damages, subject to the usual rules on proving loss and mitigation. An indemnity is a direct promise to reimburse a specific loss, pound for pound, without the buyer having to prove breach or quantify damages in the traditional way. Indemnities are typically used for identified, specific risks rather than general assurances.
Q How does a disclosure letter affect warranty claims?
A disclosure letter sets out matters that qualify the warranties. If an issue is fairly disclosed in the letter, the buyer generally cannot later bring a warranty claim based on that issue, because they bought the business knowing about it. This makes the wording of disclosures critical. Vague or overly broad disclosures tend to be rejected by buyers, while specific disclosures with supporting documents usually stand.
Q Are there standard time limits for bringing warranty claims?
Time limits are negotiated rather than fixed, but common market practice in the UK is to set general warranty claims at around 18 to 24 months after completion, with tax warranties running longer, often up to seven years to align with HMRC enquiry windows. Commercial warranties sometimes sit in between. The exact windows depend on the size and nature of the transaction.
Q What is a warranty cap?
A cap is the maximum amount the seller can be required to pay out under warranty claims. It is often set at a percentage of the purchase price, sometimes the full price for fundamental warranties such as title and capacity, and a lower figure for general business warranties. Caps are a key commercial negotiation point and vary significantly between deals.
Q Do implied warranties apply to business sales?
Implied warranties under statute, such as those in the Sale of Goods Act, have limited application to the sale of a business as a going concern or a share sale. In practice, UK business sale agreements rely almost entirely on express warranties negotiated between the parties. Buyers should not assume that statutory protections will fill gaps left by the drafting.
Q Is warranty and indemnity insurance worth it?
For larger deals, W&I insurance can smooth negotiations by allowing sellers to walk away with a clean exit while giving buyers a financially secure counterparty to claim against. It is less common on smaller transactions because premiums and minimum deal sizes make it uneconomic. Known issues are always excluded, so insurance does not replace proper disclosure and due diligence.
Q Who usually gives the warranties, the company or the shareholders?
In a share sale, the selling shareholders give the warranties personally, which is why management sellers often negotiate hard on caps and carve-outs. In an asset sale, the selling company itself gives the warranties, though buyers sometimes require personal guarantees from directors or shareholders, particularly where the selling entity will be wound up after completion.
If you're dealing with this kind of situation, speak to an experienced legal adviser who can walk you through it — from £89.

Sources

This guide is based on primary UK law and official guidance.

Brad Askew, Solicitor (non-practising)

Written & reviewed by

Brad Askew Solicitor (non-practising)

Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice. LegalDocuments.co.uk is not a law firm and does not provide regulated legal advice.

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Legal disclaimer
This article is for general information only. It is a tool to help you find your way — not legal advice, and not a substitute for speaking to a qualified adviser about your situation.