What is a warranty?

Warranties are promises by the seller as to the state of affairs of the business.  If these promises are inaccurate and cause the buyer loss, the buyer may have remedies against the seller, in particular, a claim for damages.  Warranties encourage disclosure of information by the seller and protect the buyer against undisclosed matters or liabilities.

A warranty in a business purchase agreement is in the strict sense, as with any other warranty, merely a term of the contract itself, breach of which will give rise to damages or, in rare circumstances, rescission or termination (e.g. where the breach of warranty is fundamental or if the seller is unable to transfer title to an essential asset of the business).