This is a brand new provision of the sales contract, the compensation clause. If the seller has drawn the buyer`s attention to a particular risk by indicating details in the disclosure letter, the buyer may seek compensation from the seller covering that particular risk. It is often said that compensation is closer to “insurance” than a guarantee. A right to breach the warranty follows the same rules as any right to infringement: there must be proof of loss and the buyer is required to reduce (minimize) his losses. When the seller makes a significant last-minute disclosure, the purchaser should either refuse disclosure or be willing to delay the exchange/completion in order to properly consider the potential effects of the disclosure. Another company held title to the two remaining lands, one of which contained access to the entire site and was therefore essential for its future development (Ransom Land). Although the company was controlled by the defendants, it had its own chain of ownership, which meant that it was not part of the share sales and that the shares were not transferred in accordance with the terms of the G.S.O. Therefore, the land actually acquired by share purchases (i.e. the 4 parcels and not the total 6 with access) was much less valuable. ISSUES WITH THE SHARE PURCHASE AGREEEMENT (`SPA`) Regardless of the buyer`s rigour in due diligence, the first draft disclosure letter almost always reveals new problems that the buyer previously ignored.
The purchaser should therefore request the establishment of the disclosure letter as soon as most of the guarantees in the acquisition document are essentially final. Currently, English courts are arguing that the buyer cannot assert rights before the purchase is concluded (despite the wording of a sales contract) – even if the seller has not included details in the disclosure letter. Therefore, the advice to a buyer should be that the buyer cannot necessarily rely on a right to counterfeiting if he is informed of an undisclosed issue. The buyer should try to either reduce the purchase price or obtain compensation to cover the risk. The Court of Appeal dismissed the appeal and found that, on the basis of the evidence, the judge had correctly concluded that the OSG and the disclosure letter did not record the terms agreed between the parties and that the conditions of relief had been met accordingly. Sometimes a seller may refer to certain documents when making a specific disclosure. They can do so by submitting these documents, known as “disclosure packages,” to the disclosure letter. The disclosure letter is just one example of the absolute requirement that parties to a business sale must have competent legal representation in this process.
Poorly drafted documents may lead the seller to be forced to repay some or all of the sale price, or the buyer has no recourse, although he has been misled as to the true value of the transaction.
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