Indemnities by the seller: Overview, definition, and example
What are indemnities by the seller?
Indemnities by the seller refer to promises made by the seller in a contract, where they agree to compensate or protect the buyer from specific losses, liabilities, or damages that may arise after the sale. This could involve situations where the buyer encounters unexpected costs due to issues like breaches of contract, misrepresentations, or other events that were the seller's responsibility. In essence, the seller agrees to "make good" on certain risks the buyer might face after the deal is completed.
In simpler terms, indemnities by the seller are promises made by the seller to cover certain costs or problems that come up after the sale, especially if those problems were caused by the seller.
Why are indemnities by the seller important?
Indemnities by the seller are important because they help protect the buyer from unforeseen risks or liabilities that may emerge after the transaction is completed. These protections can provide peace of mind to the buyer, knowing that the seller will be financially responsible for certain issues that may arise. For sellers, offering indemnities can make a deal more attractive to potential buyers, but it also carries risk, as the seller may need to compensate the buyer for specific claims or losses.
For SMB owners, understanding indemnities is crucial in ensuring that you are protected when selling a business or assets, as it helps clarify the scope of liability and the risks involved after the sale.
Understanding indemnities by the seller through an example
Let’s say you’re selling a business, and the buyer discovers that there are environmental compliance issues with the property after the sale. If the seller had provided an indemnity for environmental issues in the sale agreement, the buyer can claim the seller for the cost of addressing the environmental violations. This indemnity would cover the buyer’s costs, ensuring that the seller is responsible for any financial harm caused by issues that were part of the business at the time of the sale.
In this example, indemnities by the seller help ensure that the buyer is protected from the financial impact of unforeseen issues that were the seller’s responsibility.
Example of an indemnities by the seller clause
Here’s an example of what an indemnities by the seller clause might look like in a sales agreement:
“The Seller agrees to indemnify and hold harmless the Buyer from and against any losses, damages, claims, or expenses arising from (a) any breach of the Seller's representations and warranties, (b) any undisclosed liabilities or claims against the Company, or (c) any environmental violations existing as of the Closing Date.”
Conclusion
Indemnities by the seller are an important part of business transactions, as they provide protection to the buyer against certain risks or liabilities that could arise after the deal is completed. For SMB owners, offering indemnities can help close deals by assuring buyers that they will not be left with unexpected financial burdens due to the seller’s actions or omissions. It’s important to carefully negotiate and define the scope of indemnities in sales agreements to ensure clarity and reduce the risk of future disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.