One of the main functions and effect of warranties is to apportion risk and liability between a buyer and a seller, most commonly in the sale and purchase of a business.
Warranties are supposed to protect buyers by providing a price adjustment mechanism if a warranty proves to be false and in the context of a sale of the business, by facilitating the gathering of information about the business via the disclosure process.
However, warranties must not be relied upon to supplant proper due diligence as it is more useful and usually cheaper for a buyer to be made aware of material issues in advance so that there is the opportunity to either walk away, negotiate a price reduction in the purchase price or seek specific contractual protection (possibly in the form of an indemnity), to cover any breach rather than having to sue for breach of warranty at a later stage. Where a warranty has been breached we have substantial experience of both bringing claims for breach and defending claims of breach.
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