Due diligence disclosure obligations to buyer

This is a broad but important question, and the answer depends significantly on the type of transaction you are involved in. I will cover the main scenarios below, but if you can tell me more about the specific deal, whether it is a sale of a business, shares, property, or something else, I can give you much more targeted guidance.

General principle:

In English law, the starting position is caveat emptor, meaning the buyer bears the risk of what they do not discover. However, this baseline has been significantly modified by statute, common law, and commercial practice. The practical reality is that a seller who withholds material information exposes themselves to serious risk of post-completion claims, so a strategic approach to disclosure is essential.

Sale of a company or business:

In a share sale or asset sale, the buyer will typically require the seller to give warranties in the sale and purchase agreement. These are statements of fact about the business. The seller then prepares a disclosure letter and disclosure bundle against those warranties.

You should disclose the following types of information:

1. All matters that qualify the warranties, meaning anything that would make a warranty untrue or misleading if not disclosed.
2. Material contracts, including any unusual, onerous, or change-of-control provisions.
3. Litigation, disputes, regulatory investigations, and complaints, whether current, pending, or threatened.
4. Employee matters such as terms, benefits, grievances, tribunal claims, and any TUPE implications.
5. Tax liabilities, including any HMRC enquiries, outstanding assessments, or risks.
6. Property issues including title, leases, dilapidations, planning, environmental matters, and any disputes with landlords or neighbours.
7. Intellectual property ownership, licences, and any infringement issues.
8. Material supplier and customer relationships, particularly any at risk.
9. Regulatory compliance, licences, permits, and any breaches or investigations.
10. Data protection matters, including any breaches or subject access requests.
11. Insurance claims, pending or recent.
12. Any known facts that could give rise to a future claim.

The golden rule is that fair disclosure of a matter against a warranty will usually prevent the buyer from bringing a warranty claim on that point. Inadequate or unclear disclosure will not protect you.

Sale of property:

For residential property, the seller must complete standard property information forms, notably the TA6 and TA10, and answer those honestly and fully. Under the Consumer Protection from Unfair Trading Regulations 2008, a seller can also be liable for misleading omissions. You should disclose:

1. Boundary disputes and neighbour issues.
2. Building works, planning applications, and any lack of building regulations sign-off.
3. Flooding or subsidence history.
4. Rights of way and easements you are aware of.
5. Any notices from authorities.
6. Japanese knotweed or other environmental issues.

For commercial property, the position is more heavily driven by the replies to commercial property standard enquiries and the terms of the contract.

Strategic points on disclosure:

Disclosure is not just a legal obligation but a strategic tool. Over-disclosing immaterial matters can slow the process and create unnecessary concern. Under-disclosing exposes you to warranty claims, misrepresentation claims, or even rescission of the contract.

The best approach is to be thorough but organised. Disclosures should be specific, clear, and cross-referenced to the relevant warranty or enquiry. Vague or general disclosures, such as "the buyer should be aware there may be issues with suppliers", are likely to be held insufficient.

You should also be alive to the distinction between general disclosures, which relate to publicly available information such as Companies House filings, and specific disclosures, which relate to particular facts within your knowledge. Both need to be handled carefully.

Risks of inadequate disclosure:

1. Post-completion warranty or indemnity claims.
2. Claims for misrepresentation under section 2(1) of the Misrepresentation Act 1967, which carries a reversed burden of proof.
3. Potential rescission of the contract in cases of fraudulent or negligent misrepresentation.
4. In property transactions, claims under the Consumer Protection from Unfair Trading Regulations 2008.
5. Reputational damage and cost of defending proceedings.

If you tell me more about the nature of the transaction, the type of asset being sold, and the stage you are at, I can give you much more specific guidance on what to prioritise and how to structure your disclosure exercise.