Business Purchase Warranty Breach? Letter of Demand to the Vendor

You bought a business. Days, weeks or months after settlement, the cracks appeared. Revenue does not match the figures warranted. Key contracts were not transferable, or were terminating. Liabilities not disclosed at sale have surfaced. Staff the seller said were committed have walked. Customer concentration was understated. The business you paid for is materially different from the business the share or asset sale agreement warranted.

Sale of business agreements — share sale agreements (SSAs) and business sale agreements (BSAs) — invariably contain detailed warranties. Where the warranties are breached and you have suffered loss, a Letter of Demand is the contractual step before a formal warranty claim, indemnity call, price adjustment, or rescission application.

The legal context

Sale agreements typically contain warranties about financial accounts, contracts, employees, intellectual property, litigation, tax and compliance. Breach gives rise to a contractual damages claim measured by the difference between the value of the business as warranted and as delivered. Many agreements specify notice procedures, time limits (commonly 12 to 24 months for general warranties, longer for tax and title), and quantum thresholds. The Australian Consumer Law’s misleading or deceptive conduct provisions (s 18) often run alongside the contractual claim and are powerful in pre-contractual representation cases.

Common pushbacks and why they fail

• “You did due diligence.” DD does not extinguish warranties; the seller cannot warrant something and then say “you should have checked”.
• “It was disclosed.” Disclosure schedules must be specific. Vague references rarely qualify.
• “Threshold and cap apply.” They do — but most genuine warranty breaches exceed thresholds, and ACL claims run separately from contractual caps.
• “Time-bar applies.” Notice periods are tight, which is exactly why a formal letter must go out promptly.

The document and what it does

A Letter of Demand identifies the sale agreement, the specific warranties breached, the supporting facts, the loss quantified, and the remedy claimed — indemnity, price adjustment, damages, or rescission. It complies with the agreement’s notice procedure, preserves time limits, and signals the escalation to formal proceedings or the agreement’s dispute mechanism.

What Claim Done delivers

• The sale agreement and specific warranties referenced precisely
• Breach facts and supporting documents catalogued
• Loss quantified using the warranted-versus-delivered measure
• Compliance with notice procedure and time limits
• Drafted and sent as a PDF, flat $49

What to expect after

Sale-of-business disputes are usually resolved by negotiated price adjustment, indemnity payment, or escrow release. Sellers and their advisers generally prefer settlement to a public commercial dispute. Expect substantive engagement inside 30 days. If the seller refuses, the next step is the agreement’s dispute resolution mechanism — typically mediation followed by court or arbitration.