The draft arrives attached to a business sale agreement, a share transfer or an IP assignment. It is called a deed of warranty, and the other side wants it signed before completion. Before you sign, it is worth knowing which clauses decide what you are actually promising, what you can recover if a promise turns out to be false, and how long you have to do anything about it.
A deed of warranty is the document that turns commercial promises into enforceable obligations. It is a deed rather than an ordinary contract, which matters for two practical reasons. First, under Australian common law a deed is enforceable without consideration, the exchange of value that normally makes a promise binding, so it works even where a promise is not supported by payment. Second, because it is a deed, execution has to follow particular formalities and the parties can set their own rules for how long warranties last, how much can be recovered and how claims are run. It can stand alone or sit inside a larger deal document, but in either case the clauses below are where the real risk allocation happens.
The clauses that do the work
Most deeds of warranty are built from the same nine building blocks, negotiated in roughly this order of commercial weight.
The warranties themselves
The core of the deed is a list of promises that the warrantor makes about specific facts: that the assets are owned, that the accounts are accurate, that tax is paid, that no undisclosed claims exist. Each warranty should be tied to defined terms, dates and documents so there is no argument later about what was being promised. In a business sale the typical subject areas look like this:
- Ownership and title: the warrantor owns the assets or shares free of liens, charges and security interests.
- Authority and capacity: the warrantor has the power to enter the deed, which matters where board or shareholder approval is required.
- Financial statements: the accounts are true and fair and prepared in accordance with applicable standards.
- Tax: filings are up to date, tax has been paid and there are no unresolved tax disputes.
- Contracts and IP: material contracts are valid and assignable, the business owns or validly licences the IP it uses, and no infringement claims are threatened.
- Employment and compliance: employment obligations are met and licences, permits and industry laws are complied with.
The drafting choice that matters most is specificity. A warranty that says "the business complies with all laws" sounds protective but is almost impossible to verify and easy to breach on a technicality. Warranties should be narrowed to the facts that would actually damage the buyer if wrong. One trap to flag: a deed of warranty is not the same as a consumer warranty against defects. If you give consumer-facing warranties, s 102 of the Australian Consumer Law in schedule 2 of the Competition and Consumer Act 2010 (Cth) prescribes their form and content and attaches penalties for non-compliance, so the two documents should never be confused.
The disclosure letter
The disclosure letter is the schedule that lists the exceptions to the warranties. Anything properly disclosed is carved out of the warrantor's liability, which makes it the seller's first line of defence. The drafting choice that matters is how disclosure interacts with each warranty: a well-drafted letter discloses against specific warranties ("item 4 qualifies the warranty at clause 3.2"), while a vague letter that discloses a bundle of documents against everything protects nothing. The variants and traps to negotiate are:
- Variant the buyer pushes for: a rule that only specific disclosures qualify, with general disclosures disregarded.
- Variant the seller pushes for: broad disclosure against all warranties plus a statement that the seller's knowledge qualifies every warranty.
- Trap: a disclosure letter drafted after the warranties are finalised, so disclosed matters contradict what was promised, or disclosures made orally that never make it into the letter.
The letter is usually signed at the same time as the deed, and the deed should say that the warranties are given "subject to the disclosure letter" so there is no doubt about what qualifies.
The cap on liability
Almost every negotiated deed caps the warrantor's total liability at a percentage of the purchase price, often between 50 and 100 per cent, with a separate, higher cap or no cap at all for tax and title warranties. The clause also usually includes a de minimis rule, where individual claims below a set dollar amount are ignored, and a basket, where the buyer must accumulate claims above a minimum before anything is payable. The drafting choice that matters is how claims aggregate: whether the cap applies per claim or to all claims in total, and whether the basket operates as a threshold (once exceeded, the buyer recovers everything) or a deductible (the buyer only recovers amounts above it). The buyer and seller positions are:
- What a buyer pushes for: no cap, or a cap set at the full purchase price, with no basket and no de minimis.
- What a seller pushes for: a low cap, a high basket and a per-claim de minimis that stops nuisance claims.
The claim window
Warranties do not last forever. The deed commonly says they survive completion for 12 to 24 months, with longer periods for tax and title warranties, and that claims must be notified within that window. This clause matters more than most buyers realise, because the statutory fallback is far longer than any negotiated window. In New South Wales, for example, an action founded on a deed can be brought up to 12 years after the cause of action accrues under s 16 of the Limitation Act 1969 (NSW), compared with six years for an ordinary contract under s 14. Other states have their own regimes, but the pattern is the same: if you do not agree a claim window, the deed stays enforceable for years, which most sellers cannot live with and most buyers should not assume. The points that need care are:
- Trap: the clause requires a claim notice within the window, not merely a dispute that arises inside it. A buyer who discovers a problem in month 20 but serves no notice until month 27 has lost the claim even though the deed is otherwise enforceable for 12 years.
- Drafting choice: whether the clock starts at completion or at the date of the deed, and whether tax and title warranties survive on a different, longer timetable.
Knowledge and materiality qualifiers
Sellers rarely warrant facts absolutely. The common qualifier is "to the best of the warrantor's knowledge", and the clause should define whose knowledge counts and what inquiries that person must make. An unqualified "to our knowledge" can mean the directors know nothing and asked no one; a buyer should push for "after reasonable inquiry" and for named individuals whose knowledge is attributed to the company. Materiality qualifiers work the same way: "no material breach of contract" needs a definition of materiality, either a dollar figure or a link to the deal's value, or the qualifier will be litigated later. The variants in play are:
- Variant the seller pushes for: knowledge limited to the actual state of mind of directors, with no duty of inquiry.
- Variant the buyer pushes for: knowledge after reasonable inquiry, extended to key employees, with materiality measured against a defined amount.
Indemnities
An indemnity is a promise to make good a defined loss on the occurrence of a specified event, and it is a stronger remedy than a warranty. Breach of a warranty gives the buyer damages for the loss caused by the falsity, which invites arguments about causation, mitigation and quantification. An indemnity simply obliges the indemnifier to pay the stated loss, which is why indemnities are used for the risks buyers fear most: pre-completion tax liabilities, environmental contamination, employee underpayments and third-party claims. The drafting choice that matters is which items are indemnified rather than merely warranted, and whether the indemnity sits inside the cap or outside it. Unsurprisingly, sellers push to keep indemnities inside the cap, and buyers push for uncapped indemnities on tax and title.
The claim process
The deed should set out how a claim is made, what the notice must contain, and what happens after it is served. A typical clause requires written notice within the claim window describing the nature of the claim, the warranties breached and a reasonable estimate of loss, followed by the warrantor's right to investigate, access documents and control the response to any third-party claim. The clause should also deal with mitigation, requiring the claiming party to take reasonable steps to reduce loss, and with who controls the defence and settlement of third-party claims. These process rules decide whether a valid claim survives or dies on a technicality, so they deserve the same attention as the limits.
Exclusions and exclusive remedies
The deed usually excludes certain categories of loss from recovery, most commonly consequential loss, lost profits and double recovery, and may state that the deed's remedies are the exclusive remedies for the warranted matters. The drafting choice that matters is how the deed interacts with the main agreement: if the sale agreement contains a time bar or an exclusive remedy clause that conflicts with the deed's claim process, the inconsistency will be argued about when a claim is made. Definitions such as "Loss", "Claim" and "Tax" should match across the suite of documents so there are no gaps.
Execution and delivery
Because this is a deed, execution formalities decide whether it is enforceable at all. For companies, s 127 of the Corporations Act 2001 (Cth) provides the standard route: the deed is executed by two directors, or a director and a company secretary, or, for a proprietary company with a sole director, that director where they are also the sole secretary or the company has no secretary. Under s 127(3), the document takes effect as a deed if it is expressed to be a deed and executed in one of those ways. Two points in the section remove the old traps: no witnessing is required under s 127(3A), and delivery is not necessary under s 127(3B). Counterparties can also rely on the assumptions in s 129(5), so they do not need to investigate internal authorisation.
For individuals, the position differs. In New South Wales, s 38 of the Conveyancing Act 1919 (NSW) requires a deed to be signed and sealed and attested by at least one witness who is not a party to it, and s 38A allows deeds to be created and signed electronically. Other states have their own rules, so the witnessing requirement needs to be checked against the state whose law governs the deed. Other execution points to watch are:
- Trap: a trustee signs without stating the capacity ("as trustee for the XYZ Trust"), leaving the trustee personally liable, or a partner signs a deed that the partnership's constitution does not authorise.
- Trap: board or shareholder approval is required before signing, and the deed is executed before the resolution is recorded.
- Practical point: electronic signing is now routine, but confirm that the deed itself contains a clause permitting electronic execution and signing in counterparts.
Clauses worth adding when the deal calls for them
Beyond the nine core clauses, these options appear regularly in Australian deals:
- Survival clause: makes explicit that the warranties continue after completion, paired with the claim window so there is no argument about when the clock starts.
- Warranty and indemnity insurance coordination: where the buyer insures the warranty risk, the deed needs exclusions and disclosure obligations that keep the policy valid.
- Escrow or holdback: a retained slice of the purchase price that stays available to meet warranty claims, common in smaller deals where the buyer would otherwise chase a company that has already distributed its proceeds.
- Entire agreement and no reliance: confirms the deed and the main agreement are the whole deal, and pre-contract statements do not create extra warranties.
- Governing law and jurisdiction: pins the deed to one state's law and courts, which matters when the parties are in different states or the assets span several.
When an Artificer Legal lawyer should look at the deed
A deed of warranty is one of those documents where the negotiation order is as important as the drafting. An Artificer Legal practitioner would start by testing the scope of the warranties against the actual risk in the deal, so that time is not spent negotiating promises that do not protect anyone. We would then review the disclosure letter for completeness, because it is the clause most likely to be misdrafted, and only after that work through caps, time limits and process, checking that every definition and deadline in the deed lines up with the main agreement. The clauses we would push back on are the absolute warranties ("no breach of any law"), the uncapped indemnities and the undefined knowledge qualifiers; the variants we would insist on are specific disclosure mechanics, a defined knowledge standard with named individuals, and a claim window matched to the real risk profile, longer for tax and title. A review of this kind is usually a fixed-fee exercise, and one conversation before you sign is enough to identify the clauses that will decide who carries the risk.
The disclosure letter decides who carries the risk
If one clause separates a deed that works from a deed that does not, it is the disclosure mechanics. Sellers who treat the disclosure letter as an afterthought stay liable for problems they could have carved out, because a fact that is not disclosed is a fact they warranted. Buyers who skim the letter accept risk they think the warranties cover, because a disclosed problem is one they have already agreed to bear. The disclosure letter is where the deal's real risk allocation is written down, and it is the most-misdrafted clause in the document precisely because it is negotiated last, when everyone is tired and wants to sign.
To recap: a deed of warranty is enforceable without consideration, survives by agreement for a negotiated claim window, and its value comes from tailored warranties, a complete disclosure letter, sensible caps and a workable claim process. Companies execute it most safely under s 127 of the Corporations Act 2001 (Cth), individuals need to check state witnessing rules, and the deed must be aligned with the main deal documents so definitions, time limits and remedies do not conflict.