A warranty is a contractual statement of fact about the target business made by the seller in the share sale or asset sale agreement, breach of which gives the buyer a right to damages. Warranties in Australian M&A typically cover ownership of the shares or assets, accuracy of financial statements, tax compliance, employment matters, intellectual property, material contracts, litigation, and environmental matters.
Warranty claims are subject to caps, baskets, deductibles, and survival periods negotiated between the parties.