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The Disclosure Letter: The Difference Between a Warranty and a Claim
Learn what a Disclosure Letter does in a UK business sale, how it differs from the Disclosure Schedules, and why vague disclosure leaves sellers exposed after completion.
The 30-Second Definition
The Disclosure Letter is the seller's formal written notice to the buyer, delivered alongside the Share Purchase Agreement, listing every fact, matter, or circumstance that qualifies the warranties given in the agreement. Anything properly disclosed in it cannot later form the basis of a warranty claim.
How It Relates to the Disclosure Schedules
The Letter is the covering legal document that gives formal effect to disclosure. The Disclosure Schedules — and the supporting bundle of documents behind them — are where the substance actually sits: for example, "see Schedule 4.2: outstanding litigation against [named party]."
Together, the Letter and the Schedules form the complete disclosure package, and both have to be read against the warranties in the SPA to understand a seller's real post-completion exposure.
Why Precision Matters
Courts and arbitrators interpret disclosure narrowly. A document sitting somewhere in the data room is not automatically treated as "disclosed" unless the Disclosure Letter specifically and clearly cross-references it. The fair disclosure standard generally requires that a matter be disclosed with enough detail that a buyer's advisers could reasonably identify and assess the risk themselves — burying it in volume is not the same as disclosing it properly.
Where Founders Go Wrong
Relying on general disclosure wording — language along the lines of "everything contained in the data room is deemed disclosed" — without specific signposting to individual items is increasingly scrutinised by buyers' lawyers and leaves real gaps a buyer can exploit after completion, when a seller has the least leverage to push back.
When It Gets Drafted
The Disclosure Letter is negotiated in parallel with the SPA in the final weeks before signing, and is often the most contested document in the room — because every line item represents a risk being shifted from seller to buyer, or vice versa.
GRAX Connection
This is the document that actually determines how much warranty risk a seller carries after Exit. Getting the SPA's warranties right and the Disclosure Letter wrong leaves the protection it's meant to provide largely illusory.
This entry is for general information only and does not constitute legal, financial, or tax advice. Founders should take specific professional advice before acting on any of the points covered here.
