A buyer acquires 100% of a Turkish company for EUR 15 million.

The Share Purchase Agreement states that:

• the company’s financial statements are accurate;
• there are no undisclosed liabilities;
• all taxes have been properly paid;
• no material litigation is pending;
• the company owns its intellectual property;
• all material contracts are valid;
• the company complies with applicable law.

Six months after closing, the buyer discovers a tax assessment relating to the pre-closing period, an undisclosed lawsuit and a substantial debt that never appeared in the financial statements.

The seller responds:

“You bought the shares, not the company’s assets. You conducted due diligence. The transaction has already closed.”

Does the buyer have a compensation claim?

Under Turkish law, very often the answer will depend less on the simple existence of the problem and more on how the representations, warranties and indemnification regime were drafted in the Share Purchase Agreement (“SPA”).

Representations and warranties are therefore not merely descriptive sections of an acquisition agreement. In a post-closing dispute, they can determine whether a EUR 15 million acquisition remains a profitable transaction or turns into years of litigation over who must bear hidden liabilities.

1. Why Representations and Warranties Matter in a Share Sale

In an asset acquisition, the buyer acquires specific assets.

In a share acquisition, the buyer acquires shares in the target company.

The company itself continues to exist with all of its:

• assets;
• debts;
• employees;
• tax history;
• litigation;
• regulatory exposure;
• contractual obligations;
• environmental liabilities;
• intellectual property issues;
• accounting problems.

Therefore, if a company has an undisclosed TRY 100 million tax liability before closing, that liability does not disappear simply because its shares are sold.

The liability remains with the target company.

Economically, however, the buyer now owns the company that must pay it.

This is precisely why SPAs contain extensive seller representations and warranties.

The seller may represent, for example, that:

“Except as Fairly Disclosed, the Target has no liabilities other than those reflected in the Accounts.”

If this statement proves false, the buyer may seek compensation from the seller under the contractual liability regime agreed in the SPA and, depending on the circumstances, under the Turkish Code of Obligations.

2. Turkish Law Does Not Have a Separate Statute Specifically Governing M&A Warranties

Turkish law contains no stand-alone legislative regime equivalent to a specialised “M&A warranties act.”

The legal consequences of representations and warranties are primarily analysed under the Turkish Code of Obligations (“TCO”), contractual freedom and the provisions specifically agreed between the parties.

Article 219 TCO provides that the seller is liable where the sold subject lacks qualities represented by the seller or contains material, legal or economic defects that substantially reduce its value or the benefit expected by the buyer. Importantly, statutory defect liability can arise even where the seller did not know of the defect.

However, there is an important doctrinal issue in share acquisitions.

Technically, the direct subject of the sale is the shares.

Many warranties in an SPA concern not the legal characteristics of the shares themselves but the underlying company—for example:

• tax compliance;
• financial statements;
• employees;
• litigation;
• environmental issues;
• customer contracts.

Turkish legal scholarship therefore contains differing views as to whether every warranty concerning the target company automatically constitutes a guaranteed quality of the sold shares for purposes of Article 219. This uncertainty is one reason sophisticated SPAs expressly regulate the consequences of warranty breaches rather than relying only on statutory rules.

3. The SPA Should Create an Independent Contractual Compensation Mechanism

A well-drafted SPA should not merely state:

“The seller represents that the Target has no undisclosed liabilities.”

It should also answer:

“What happens if that statement is false?”

A modern SPA commonly provides that the seller must indemnify or compensate the buyer for losses caused by a breach of representations and warranties.

For example:

Seller shall indemnify the Buyer against all Losses arising from or relating to any breach of the Seller Warranties.

This apparently simple sentence can dramatically change the dispute.

Instead of arguing solely about statutory defect rules, the buyer can rely on a specifically negotiated contractual allocation of risk.

Turkish M&A practice commonly uses indemnification provisions precisely for this purpose.

4. Representation, Warranty and Indemnity Are Not Necessarily the Same Thing

In international transaction documents the expressions are often used together:

Representations and Warranties

But legally, the SPA should distinguish between three ideas.

Representation

A statement concerning an existing or historical fact.

Example:

“There is no litigation pending against the Target.”

Warranty

A contractual assurance that a stated fact or condition is true.

Example:

“The Accounts fairly present the financial position of the Target.”

Specific Indemnity

An express allocation of a known or specifically identified risk.

Example:

“The Seller shall indemnify the Buyer for any Tax Liability arising from the tax audit concerning the Target’s 2024 fiscal year.”

The distinction becomes important because a specific indemnity can often be drafted to operate without requiring the buyer to establish the same elements that might apply to a general warranty claim.

5. General Warranty Claims and Specific Indemnities Should Be Separated

Consider a target company undergoing a tax audit.

During due diligence, the buyer knows about the audit.

The buyer therefore cannot realistically demand a warranty saying:

“There are no tax audits.”

Instead, the SPA may disclose the audit and include a special indemnity:

“The Seller shall indemnify the Buyer against all Taxes, penalties, interest and reasonable costs arising from the Tax Audit relating to periods ending before Closing.”

The logic is straightforward.

The general warranty allocates unknown risk.

The specific indemnity allocates identified risk.

This is why tax claims, litigation, regulatory investigations and historical compliance problems are frequently addressed through separate indemnities.

6. What Can the Buyer Recover?

The answer should ideally appear directly in the SPA’s definition of Loss.

An agreement might define Loss to include:

• damages;
• liabilities;
• taxes;
• penalties;
• interest;
• court awards;
• settlement payments;
• reasonable legal fees;
• expert fees;
• costs of remediation;
• loss in share value.

Without precise drafting, significant disputes may arise regarding whether a particular financial consequence is recoverable.

For example, assume the seller warranted that the company had no undisclosed tax liabilities.

After closing:

Tax principal: TRY 20 million
Tax penalty: TRY 10 million
Interest: TRY 4 million
Legal and accounting costs: TRY 1 million

The buyer may argue that the total loss is TRY 35 million.

Whether all TRY 35 million can be recovered may depend heavily on the contractual definition of Loss and the applicable mandatory rules.

7. Direct Loss Versus Reduction in Share Value

This is one of the most difficult issues in M&A litigation.

Suppose the buyer paid EUR 20 million for the shares.

After closing, an undisclosed liability of EUR 3 million emerges.

One approach is:

Company liability = EUR 3 million → Buyer loss = EUR 3 million.

But corporate valuation is not always so simple.

If the undisclosed liability reduces enterprise value by EUR 3 million, the actual equity value impact may also be affected by:

• taxes;
• debt;
• valuation multiples;
• EBITDA;
• contractual pricing formulas;
• whether the liability was already reflected in the purchase price.

An expert may therefore be required to establish what the buyer would have paid had the true position been known at signing.

A common damages theory is:

Value of shares as warranted – actual value of shares = recoverable loss.

A second approach is to reimburse the actual liability suffered by the target or buyer.

The SPA should state which approach applies.

8. Example: Hidden Litigation

The seller represents:

“There is no pending or threatened litigation involving the Target with a value exceeding EUR 100,000.”

After closing, the buyer discovers that before signing the target had already received a demand letter relating to a EUR 2 million commercial dispute.

The claim subsequently results in a EUR 1.5 million judgment.

Potential recoverable amounts could include:

• EUR 1.5 million judgment debt;
• interest;
• legal fees;
• expert fees;
• potentially other directly connected losses.

The seller may respond that litigation outcomes are uncertain and that the buyer cannot prove that the shares were overvalued by exactly EUR 1.5 million.

That argument is precisely why indemnity drafting matters.

If the SPA simply states that the warranty must be “true,” damages analysis may become complicated.

If it states that the seller shall reimburse all losses arising from the undisclosed litigation, the contractual route becomes clearer.

9. The Buyer Must Identify Which Warranty Was Breached

A post-closing claim should never be drafted vaguely as:

“The seller misrepresented the company.”

The buyer should identify:

Warranty: No undisclosed liabilities.

Contract provision: Clause 9.4.

Breach: TRY 35 million liability originating before closing was omitted from the financial statements.

Discovery: Buyer learned of the liability on 5 March.

Loss: Target paid TRY 35 million.

Contractual remedy: Seller indemnification under Clause 12.

This structure greatly strengthens both negotiation and litigation.

10. Financial Statement Warranties Are Particularly Important

One of the most valuable warranties in an SPA concerns the target’s accounts.

Typical wording may state that:

• accounts were properly prepared;
• applicable accounting principles were followed;
• accounts fairly present the company’s assets and liabilities;
• there are no unrecorded liabilities.

The importance of accurate financial records is also reflected in Turkish Court of Cassation jurisprudence.

In a 2024 case concerning liabilities arising from a pre-transfer contract, the dispute centred on whether the economic burden should affect the price paid for transferred company shares. The case illustrates the importance of the buyer’s investigation, evidence and the company’s financial records when later alleging that a hidden obligation reduced the value of the acquired shares.

A buyer should therefore avoid relying on a generic statement that “the company is financially healthy.”

The warranty should identify specific accounting standards and specific risks.

11. Does Due Diligence Eliminate Seller Liability?

Not necessarily.

Almost every sophisticated acquisition includes financial, legal and tax due diligence.

The seller may nevertheless argue after closing:

“You had access to the data room. You should have discovered the problem.”

Whether that defence succeeds depends heavily on the SPA.

Under Article 222 TCO, a seller is generally not liable for defects actually known to the buyer when the contract was concluded. For defects that could have been discovered through sufficient examination, the seller may nevertheless be liable where it expressly warranted that the relevant defect did not exist.

This statutory rule makes carefully drafted warranties particularly valuable.

12. Buyer Knowledge Should Be Expressly Regulated

The SPA should answer:

Does buyer knowledge prevent a warranty claim?

There are several possible approaches.

Seller-Friendly Approach

The seller has no liability for any matter:

• actually known by the buyer;
• fairly disclosed;
• revealed during due diligence.

Buyer-Friendly Approach

The warranties remain effective regardless of the buyer’s knowledge unless the matter was specifically disclosed against the relevant warranty.

This is sometimes described internationally as a form of sandbagging protection.

Turkish law does not provide a universal M&A rule answering every version of this issue. Therefore, the agreement should expressly regulate it.

13. The Disclosure Letter Can Decide the Case

The seller may provide a disclosure letter immediately before signing.

Suppose the warranty states:

“The Company is not party to any litigation.”

The disclosure letter states:

“The Company is defendant in Istanbul 5th Commercial Court File No. 2026/250, with a claim value of TRY 8 million.”

The buyer ordinarily cannot later claim that the disclosed case breached the warranty if the SPA properly qualifies the warranty by matters fairly disclosed.

Disclosure letters are therefore a primary risk-allocation mechanism in Turkish M&A transactions.

But sellers should not assume that dumping thousands of documents into a virtual data room automatically constitutes effective disclosure.

The SPA should define Fairly Disclosed.

14. What Does “Fairly Disclosed” Mean?

A buyer-friendly definition may require disclosure to contain enough detail to enable a reasonable buyer to understand:

• the nature of the issue;
• its scope;
• its potential financial impact.

For example:

Weak disclosure:

“See litigation documents in Data Room Folder 12.”

Better disclosure:

“Target is defendant in a claim by X Ltd. seeking TRY 30 million, filed on 3 February 2026, relating to alleged breach of the Distribution Agreement.”

The second disclosure makes it substantially harder to argue later that the seller hid the risk.

15. Knowledge Qualifiers Can Dramatically Reduce Warranty Protection

Consider two warranties.

Absolute Warranty

“There are no threatened claims against the Target.”

Knowledge-Qualified Warranty

“So far as the Seller is aware, there are no threatened claims against the Target.”

The second wording introduces an additional evidentiary dispute:

What did the seller know?

The SPA should therefore define “Seller’s Knowledge.”

Possible definitions include:

• actual knowledge only;
• actual knowledge of specified individuals;
• knowledge after reasonable inquiry;
• knowledge that management should reasonably have had.

For the buyer, “actual knowledge only” can significantly weaken protection.

16. Fraud and Deliberate Concealment Are Different

Assume the seller knows that the tax authority has issued a TRY 50 million assessment.

The seller removes the document from the data room and gives a warranty that:

“There are no outstanding tax assessments.”

This is very different from a seller innocently overlooking a minor invoice.

Turkish law places important restrictions on contractual attempts to excuse serious misconduct.

Under Article 115 TCO, an advance agreement excluding liability for gross fault is void. In the sales context, Article 221 similarly provides that a seller acting with gross fault in transferring a defective subject cannot rely on contractual provisions excluding or limiting defect liability.

Accordingly, a seller should not assume that a general liability cap will necessarily protect intentional concealment or gross misconduct.

17. Notification Requirements Are Critical

The statutory sales regime also contains notice rules.

Article 223 TCO requires the buyer to inspect the sold subject when reasonably possible and notify the seller of defects within the applicable period. Latent defects discovered later must be notified promptly. Article 225 restricts a seriously at-fault seller from relying on failure to provide timely notice.

Sophisticated SPAs normally create their own detailed claims procedure.

For example, a notice may be required to specify:

• the warranty allegedly breached;
• factual basis of the claim;
• estimated amount;
• documents relied upon;
• whether third-party proceedings exist.

The seller should receive sufficient information to evaluate the claim.

18. Third-Party Claims Require a Separate Procedure

Suppose a former distributor sues the target after closing.

The buyer claims the litigation relates to circumstances existing before closing and therefore falls within a seller indemnity.

The SPA should regulate:

• who controls the defence;
• who appoints lawyers;
• whether the buyer can settle;
• whether seller consent is required;
• information-sharing obligations;
• cooperation;
• settlement restrictions.

Otherwise, a new dispute arises:

“You settled the EUR 5 million claim for EUR 4 million without consulting me. Why should I reimburse you?”

A well-drafted third-party-claims clause avoids this problem.

19. De Minimis Clauses Prevent Trivial Claims

Suppose the SPA contains fifty warranties.

After closing, the buyer identifies twenty small breaches of EUR 500 each.

The seller may not want to process dozens of insignificant claims.

A de minimis clause establishes a minimum amount for each individual claim.

Example:

“No Warranty Claim may be brought unless the amount of such individual claim exceeds EUR 25,000.”

A EUR 10,000 claim is therefore disregarded.

De minimis thresholds are widely used in Turkish transactional practice, although they originate from contractual M&A practice rather than a specific statutory concept.

20. Basket Clauses Create an Aggregate Threshold

A basket works at the aggregate level.

Example:

Individual de minimis: EUR 25,000

Basket: EUR 300,000

The buyer discovers qualifying warranty claims of:

EUR 100,000
EUR 90,000
EUR 80,000
EUR 60,000

Total: EUR 330,000.

The basket is exceeded.

But another question then arises:

How much can the buyer recover?

Deductible Basket

Buyer recovers only the amount exceeding EUR 300,000.

Recovery: EUR 30,000.

Tipping Basket

Once EUR 300,000 is exceeded, buyer recovers the entire EUR 330,000.

The SPA must specify which structure applies.

21. The Liability Cap Can Be the Most Important Number in the SPA

A seller will normally seek an overall cap.

For example:

General warranties: maximum 20% of purchase price.

Fundamental warranties: 100% of purchase price.

Tax indemnity: 100%.

Fraud: uncapped to the extent permitted by law.

Assume purchase price is EUR 20 million.

General warranty cap: 20%.

Maximum general warranty recovery:

EUR 4 million.

Even if the buyer establishes EUR 8 million in damage, contractual recovery may be limited to EUR 4 million unless an exception applies.

Caps therefore deserve the same level of attention as the purchase price.

22. Fundamental Warranties Should Usually Receive Different Treatment

Some warranties are so fundamental that sellers generally cannot expect the same narrow liability protection.

Typical fundamental warranties concern:

• seller’s title to shares;
• authority to execute the SPA;
• valid existence of seller;
• absence of encumbrances over shares.

Imagine paying EUR 20 million and discovering that the seller did not legally own the shares.

A 10% warranty cap would provide commercially inadequate protection.

For this reason fundamental warranties frequently have:

• higher caps;
• longer survival periods;
• fewer exclusions.

23. Tax Warranties and Tax Indemnities Require Their Own Regime

Tax risks are particularly important because an assessment can arise years after closing but relate entirely to the seller’s ownership period.

An SPA may therefore state:

“The Seller shall indemnify the Buyer for Taxes attributable to any period ending on or before Closing.”

This is usually more effective than relying only on a generic statement that all tax returns were accurate.

Turkish M&A practice commonly aligns tax warranty or indemnity periods with the applicable tax limitation periods; other commercial warranties are frequently given shorter contractual survival periods.

24. Warranty Survival Periods Must Be Drafted Carefully

A typical SPA may provide:

General warranties: 18 months

Tax warranties: relevant statutory period plus additional time

Fundamental warranties: 5 years or another negotiated period

However, contractual claim periods should not be drafted casually.

The interaction between contractual survival periods, statutory prescription rules and the legal character of the claim must be analysed under Turkish law.

Under the statutory defect regime, Article 231 TCO provides a two-year period from transfer unless the seller has undertaken liability for a longer period; a seller acting with gross fault cannot benefit from that statutory two-year rule.

For broader contractual claims, the applicable limitation analysis may differ.

The safest drafting practice is therefore not merely to write “warranties survive for two years,” but to regulate:

• notification deadline;
• effect of timely notification;
• litigation/arbitration commencement deadline;
• statutory limitation rules;
• fraud carve-outs.

25. Can the Buyer Rescind the Entire Share Purchase?

Potentially, but this is commercially extreme.

Under Article 227 TCO, where statutory defect liability applies, the buyer’s remedies can include rescission, price reduction and damages under general principles.

In a completed M&A transaction, rescission can be extremely complicated.

The target may have:

• distributed dividends;
• entered new contracts;
• changed management;
• borrowed money;
• sold assets;
• acquired businesses.

Restoring both parties to their original position may therefore be commercially difficult.

For this reason most sophisticated SPAs make monetary compensation or indemnification the primary post-closing remedy.

26. Exclusive Remedy Clauses

A seller may seek wording such as:

“The indemnification provisions of this Agreement constitute the Buyer’s sole and exclusive remedy for any breach of Warranty.”

This is designed to prevent the buyer from avoiding negotiated caps and baskets by recharacterising the same facts as another contractual claim.

From the buyer’s perspective, exclusions should normally be considered for:

• fraud;
• deliberate concealment;
• fundamental warranties;
• specific performance;
• claims that cannot lawfully be excluded.

Otherwise, an exclusive-remedy clause may substantially narrow available remedies.

27. Double Recovery Should Be Prevented

Suppose a hidden liability is TRY 20 million.

The purchase price adjustment mechanism has already reduced the price by TRY 20 million.

The buyer should not generally receive another TRY 20 million indemnity for the exact same economic loss.

SPAs therefore commonly contain anti-double-recovery clauses.

The same applies where:

• an insurer reimburses the loss;
• a third party pays compensation;
• a tax saving offsets part of the damage;
• the issue has already been reflected in completion accounts.

This prevents compensation from turning into unjustified enrichment.

28. Mitigation Should Also Be Addressed

A seller may argue that the buyer unnecessarily increased the loss.

For example:

A regulator assesses TRY 10 million.

The company could have appealed successfully.

The buyer simply pays without objection and demands reimbursement.

The SPA should state whether the buyer has a duty to take reasonable steps to mitigate loss and how decisions regarding appeals or settlements will be made.

29. Evidence Becomes Decisive After Closing

A warranty claim should be built around documents.

Important evidence includes:

1. signed SPA;
2. disclosure letter;
3. virtual data room index;
4. due diligence reports;
5. financial statements;
6. management accounts;
7. tax records;
8. litigation files;
9. seller correspondence;
10. board minutes;
11. negotiation emails;
12. drafts showing changes to warranties;
13. expert valuation reports;
14. documents establishing the loss;
15. warranty claim notices.

In major disputes, the drafting history can also become relevant to interpreting what risk the parties intended to allocate.

30. Example: Undisclosed Company Debt

Assume the buyer acquires a company for TRY 500 million.

The SPA contains the warranty:

“The Target has no liabilities other than those fairly reflected in the Accounts or Fairly Disclosed.”

After closing, a creditor obtains judgment for TRY 60 million based on an agreement entered into before the sale.

The liability:

• was not recorded in the balance sheet;
• was not in the data room;
• was not mentioned in the disclosure letter;
• was known to former management.

The buyer’s claim may be based on:

• breach of the no-undisclosed-liabilities warranty;
• breach of the financial statements warranty;
• contractual indemnification;
• potentially other statutory remedies depending on the circumstances.

The calculation may begin with the TRY 60 million liability but may also include contractually recoverable interest and legal costs.

31. A 2024 Court of Cassation Decision Shows Why Evidence Matters

Yargıtay 11th Civil Chamber, E.2023/3513, K.2024/5674 concerned a post-share-transfer claim linked to obligations arising from a contract existing before the transfer.

The purchasers argued that the relevant obligation had not been disclosed and negatively affected the value of the shares.

The claim ultimately failed, with the courts taking into account matters including proof, the nature of the underlying transaction, the purchasers’ commercial position and the circumstances under which they could have investigated the target.

The practical message for M&A drafting is significant:

Do not rely on a future court to reconstruct the risk allocation. Put the risk allocation into the SPA.

If a specific pre-closing liability should remain with the seller, say so expressly.

32. Example of a Weak SPA

A weak agreement states:

“Seller warrants that the company is in good condition.”

This generates dozens of questions.

What is “good condition”?

Financially?

Legally?

Operationally?

For what period?

What happens if the statement is false?

What damages are recoverable?

For how long?

33. Example of a Better Liability Structure

A more sophisticated SPA may contain:

Warranty

The Financial Statements fairly present in all material respects the financial position of the Target and contain adequate provision for all liabilities required to be recognised under the Applicable Accounting Standards.

Indemnification

The Seller shall indemnify the Buyer against Loss arising from any breach of the Warranties.

Loss

Defined to include liabilities, damages, taxes, penalties, interest and reasonable professional costs.

De Minimis

EUR 25,000 per claim.

Basket

EUR 250,000 tipping basket.

Cap

30% of purchase price for business warranties.

Fundamental Warranty Cap

100% of purchase price.

Survival

18 months for general warranties.

Fraud Exception

No contractual limitation applies to deliberate concealment or fraud to the extent permitted by mandatory law.

That structure dramatically reduces uncertainty.

34. The Buyer Should Not Negotiate Only the Warranty Wording

Buyers frequently spend days negotiating whether a warranty should say:

“The Target complies with all applicable laws.”

But the more important provisions may appear fifty pages later under Limitation of Liability.

A broad warranty becomes commercially weak if:

• liability cap is extremely low;
• basket is extremely high;
• survival period is very short;
• seller knowledge qualification is extremely narrow;
• data-room disclosure is deemed universal disclosure;
• consequential loss is completely excluded.

Warranty scope and liability limitations must therefore be negotiated together.

35. The Seller Should Treat the Disclosure Process as Litigation Preparation

The seller’s strongest defence often begins before signing.

If an issue exists, disclose it clearly.

For example:

Do not simply upload a tax investigation letter into Folder 8.4.32.

Identify it in the disclosure letter.

Explain:

• authority;
• tax year;
• amount;
• current procedural stage.

If the buyer signs with that information, a later claim becomes substantially more difficult.

36. Practical Claim Checklist for the Buyer

Once a warranty breach is discovered, counsel should immediately determine:

What exactly happened?

Which SPA clause is false?

Was the matter disclosed?

When did the buyer obtain knowledge?

Does the warranty contain a knowledge qualifier?

Has the claim notice deadline started?

Does de minimis apply?

Has the basket been exceeded?

What cap applies?

Is there a special indemnity?

Does fraud or deliberate concealment potentially remove limitations?

What is the quantified loss?

Who suffered the loss—the buyer or the target?

Only after these questions are answered should a formal claim notice be prepared.

37. Seller-Side Defence Checklist

The seller should investigate:

• Was the matter fairly disclosed?
• Did the buyer actually know?
• Was it identified during due diligence?
• Is there a causal link between breach and loss?
• Has the buyer already been compensated?
• Was the issue reflected in the purchase price?
• Did the buyer mitigate?
• Is the claim below de minimis?
• Has the basket been reached?
• Is the claim above the cap?
• Was notice given on time?
• Has the contractual or statutory claim period expired?

A breach does not automatically mean that every financial consequence claimed by the buyer is recoverable.

38. Compensation Is Ultimately About Risk Allocation

The central commercial purpose of representations, warranties and indemnities is not merely to confirm facts.

It is to answer the question:

Who bears the economic consequences if those facts are wrong?

If the SPA is silent, the parties may spend years debating:

• statutory warranty liability;
• whether target-company characteristics qualify as defects in the sold shares;
• buyer knowledge;
• causation;
• valuation;
• notice;
• limitation.

If the SPA is carefully drafted, much of that uncertainty can be eliminated before closing.

Conclusion

Breach of representations and warranties in a Turkish Share Purchase Agreement can create substantial seller liability.

The buyer may potentially seek contractual compensation, price adjustment, statutory remedies and, in appropriate cases, other relief.

But the outcome depends heavily on the structure of the SPA.

The strongest agreements clearly define:

• each representation and warranty;
• disclosure standards;
• buyer knowledge;
• specific indemnities;
• recoverable losses;
• causation;
• de minimis thresholds;
• baskets;
• caps;
• claim procedures;
• third-party claims;
• survival periods;
• fraud and gross-fault carve-outs.

For the buyer, the objective is not merely to obtain a long list of warranties.

It is to create a workable compensation mechanism when one of those warranties turns out to be false.

For the seller, the objective is not to eliminate every possible liability.

It is to ensure that liability is predictable, properly disclosed and subject to commercially reasonable limits.

A useful rule for negotiating any SPA is therefore:

A representation tells the buyer what it is buying. An indemnity determines who pays when that representation is wrong.