Claim notification periods under representations and warranties: don’t just agree on them – also remember them and communicate them!
An acquisition agreement often obligates the buyer of the shares to notify the sellers of any claims against the sellers arising from an infringement of the provided representations and warranties within a certain term (e.g. 2 months) after becoming aware of the fact causing the infringement. The reason behind this is that timely notification enables the sellers to take action to restrict the damage. A second purpose of imposing a term is to establish legal certainty between parties.
Terms of 30 days, 2 months, etc., which at the time of the negotiations may have seemed long enough for the buyer, in practice often prove (too) short. Very often it takes an organization more time than originally anticipated to establish a damaging fact, link it to an infringement of the representations and warranties and subsequently proceed towards notifying the sellers.
In this context it is essential to inform the employees of the organization who are in charge of the daily operation that i) actions on a warranty against sellers are possible if the damage is incurred as a result of facts/actions that took place before the acquisition of the shares; and ii) the person responsible for the acquisition should be notified about any (possible) claims without delay.
Anneleen Steeno, intui attorneys