A sale and purchase agreement does more than record the price — its representations, warranties and indemnities are what actually allocate risk between the parties after completion.
Representations and warranties
These are statements about the target’s condition — its accounts, contracts, compliance and assets — on which the buyer relies. Their breadth and the disclosure schedule qualifying them are frequently the most heavily negotiated part of the agreement.
Indemnities
Indemnities provide for specific, identified risks — such as known litigation or a tax exposure — allocating the cost to a named party if the risk materialises, distinct from the general warranty protection.
Conditions precedent and completion mechanics
- Conditions that must be satisfied before completion, such as regulatory approval
- The completion date and what happens if conditions are not met by then
- Post-completion adjustments, such as a working capital true-up
- Restrictive covenants on the seller after completion, where appropriate
What to do next
Bring the term sheet or heads of agreement, if one exists, and the due diligence findings, so the agreement can be drafted to address the risks actually identified.