Warranties

As a business owner, you will enter into various agreements in which warranties and indemnities often play an important role. Warranty provisions give the parties certainty as to whether a particular event will or will not occur. They also affect the liability of the parties involved.

Characteristics of warranties

Warranties are contractual assurances given by one party to another in relation to certain facts, circumstances or performance. Warranties may be given in writing or orally, although it is strongly advisable to record them contractually. A warranty may be set out in a separate warranty agreement or in a clause in the contract. Warranties are not always foreseeable or specific. If a warranty provision is breached, the aggrieved party may claim damages or require performance of the warranty.

Purpose of warranties

The purpose of warranties is to provide certainty and allocate risk. The buyer may reasonably expect to receive what it believes it is buying. Warranties often relate both to the quality of goods or services supplied and to a party’s financial position. By giving warranties, the warrantor reduces uncertainty for the beneficiary and increases confidence in the agreement.

Common types of warranty

Product quality warranty

This warranty provides that a product meets the agreed quality standards and is suitable for its intended long-term use.

If a product warranty is breached, the buyer may claim damages or require the product to be repaired or replaced within the specified period.

Services warranty

Under this warranty, the service provider warrants that the services supplied meet the agreed quality requirements and professional standards. If the service provider fails to perform its obligations, the client may claim damages or require the service provider to perform those obligations. The latter is an obligation to use reasonable endeavours on the part of the buyer. During the warranty period, the recipient of the services may discover that the service provider’s work was not performed properly and may invoke the warranty.

Financial guarantees

These guarantees may relate to a party’s solvency, timely payment or compliance with financial obligations. Depending on the circumstances, financial guarantees may be provided by either the seller or the buyer as an undertaking that the relevant financial obligation will be fulfilled.

Examples of financial guarantees include performance guarantees, payment guarantees and guarantees securing repayment of loans.

Why instruct our corporate lawyers?

Drafting and reviewing warranties in agreements is a complex and important aspect of corporate law. Our experienced corporate lawyers help you prepare legally robust agreements containing clear and appropriate warranties, so that you can protect your business against unexpected costs and manage risk. We can also advise you on enforcing warranties and handling disputes arising from breaches of warranty.

Our lawyers offer not only legal expertise, but also a personal and engaged approach. We understand that every business is unique and that your company’s needs and objectives must take centre stage. Together, we work on agreements that support your business and contribute to its long-term success. Please feel free to contact us to discuss how we can assist you in drafting effective and appropriate warranties for your specific situation.