The Implications Of Full Title Guarantee When Selling A Company Or Business

For a seller disposing of any assets, such as company shares or assets held by a company, the sale and purchase agreement will typically set out all of the key legal and commercial terms including the basis upon which the sale and purchase will proceed.

Subject to exceptions in limited circumstances, the buyer will normally expect the seller to sell with full title guarantee.

What Is Full Title Guarantee?

Full title guarantee implies into the sale and purchase contract certain promises and assurances given by the seller to the buyer. These include the following:

1. That the assets concerned are sold free from any third-party interest.
2. That the seller will do whatever is reasonably required to ensure that the buyer receives good title to the assets concerned.
3. That the seller is lawfully entitled to sell the assets concerned.

Alternatively, if the sale is by way of limited title guarantee (which may be the case if the seller has no actual knowledge of the assets concerned because they act in the capacity of a trustee or personal representative for example), then the first of the above assurances is not implied into the sale and purchase contract. In place of this, it is implied that since the assets were last sold for value, the seller has not charged or otherwise encumbered the assets and that they are not aware of any such matters having been created by any third party.

The Implications Of Selling With Full Title Guarantee

From the buyer’s perspective, full title guarantee will typically be important because it provides the assurance that the buyer will receive good title to the assets concerned which is free from interference by any third party. That said, due to the importance of buying with full title guarantee, buyers may wish to additionally include express covenants and warranties in the sale and purchase agreement itself rather than relying on implied covenants alone.

From the seller’s perspective, when selling with full title guarantee, the seller will be expected to uphold the covenants which they give, whether express and/or implied. Consequently, the seller must appreciate that any failure by the seller to uphold such covenants would be a breach of contract for which the buyer could seek damages from the seller.

Ultimately, the level of title guarantee which will apply to the sale and purchase will be dictated by the respective bargaining powers of the parties concerned. That said, anything short of full title guarantee is likely to be unacceptable to a buyer except in the limited circumstances mentioned above. For this reason, it is important that sellers are fully aware of the legal effect and potential consequences of the implied covenants that they will be committing to.

The Corporate and Commercial team at Wilson Browne Solicitors is ideally placed to advise on all legal aspects of sale and purchase of companies and/or other assets. For a confidential and no obligation initial discussion about how we may be able to help, please contact the Corporate and Commercial team at 0800 088 6004.