Disclosure Letter (Business/Asset Purchase)
This Disclosure Letter is issued by a Seller (or a Seller’s Solicitors)
prior to the completion of the sale of its assets or business to a Buyer.
It is designed to protect the Seller from future claims by the Buyer under
the warranties included in the business purchase agreement (BPA). It is
also a means of the Seller providing information to the Buyer that may be
of particular interest to them about the business or assets being sold.
The Disclosure Letter will be closely linked to the warranties as set out
in the BPA. Warranties are a series of statements of fact (and sometimes
statements of opinion) which the Seller warrants to be true. If a warranty
proves to be untrue then the Buyer has a potential claim for damages. The
damages will be whatever is required to place the Buyer in the position it
would have been had the warranty been true. Usually, this will be the
difference between the actual market value of the business or assets and
the value they would have been had the warranty been true.
The Disclosure Letter allows the Seller to make disclosure against the
warranties and thus avoid a potential claim by the Buyer for a breach of
warranty. The Disclosure Letter will also be useful to the Buyer, alerting
it to any “skeletons in the closet” that may not have been revealed during
the due diligence process. Such disclosures may prompt the Buyer to
renegotiate the purchase price or require an indemnity from the Seller.
This letter is divided into three parts, an introduction, general
disclosures, and specific disclosure. The introduction clarifies the
purpose of the letter and refers to the applicable business purchase
General disclosures are standard generic disclosures that could apply to
any transaction, for example the Seller will disclose all information
contained in any documents filed with certain public registries, e.g.
Companies House or the Intellectual Property Office two days prior to
completion. The Seller is therefore making it the responsibility of the
Buyer to search various public registers and the Buyer is deemed to have
knowledge of all matters that would have been disclosed had they conducted
Finally, the Seller provides specific disclosures that are tailored to the
relevant transaction. These will reference specific warranties in the BPA.
This letter is in open format. Either enter the requisite details in the
highlighted fields or adjust the wording to suit your purposes.
Optional phrases / clauses are enclosed in square brackets. These should be
read carefully and selected so as to be compatible with one another. Unused
options should be removed from the document.