Warranties allocate unknown risk (statements of fact, qualified by disclosure, limited by caps and time). Indemnities allocate known risk (pound-for-pound repayment of identified exposures, ideally escrow-backed).
Every share purchase agreement is a machine for answering one question: if the target turns out to be worse than represented, who pays, how much, and until when? The parts of the machine are few — but each one is negotiated.
Warranties: pricing the unknown
The seller states dozens of facts — accounts are accurate, licences are valid, no litigation, tax paid, no nominee arrangements. If a statement proves false, the buyer claims damages for the difference in value. Two mechanisms then cut the exposure down:
- Disclosure — anything fairly disclosed in the disclosure letter can't found a claim. Read the disclosure letter as carefully as the SPA; it is where protection is quietly handed back.
- Limitations — the negotiated fence around claims.
| Limitation | Typical range |
|---|---|
| Cap — business warranties | 10–30% of price |
| Cap — title & capacity | 100% of price |
| De-minimis / basket | Small % thresholds before claiming |
| Time — business warranties | 12–24 months |
| Time — tax & title | Up to 5–7 years / limitation period |
Indemnities: pricing the known
When diligence finds a concrete exposure — unprovisioned gratuity, a licence mismatch, a doubtful QFZP position, threatened litigation — a warranty is useless: the issue is now known and will be disclosed. The answer is a specific indemnity: the seller repays that loss if it crystallises, outside the caps and baskets, ideally secured by escrow or holdback so recovery doesn't depend on chasing a seller who has already banked the price.
W&I insurance in the Gulf
Warranty-and-indemnity insurance has become standard on larger Gulf transactions and competitive auctions: the insurer takes the seller's warranty exposure, the seller exits clean with a nominal cap, and the buyer claims against the policy. The trade-offs: known issues are excluded (indemnities still needed), and the insurer underwrites off the diligence reports — so diligence quality directly buys coverage.
The governing-law layer
The warranty-indemnity architecture grew up in common law. Cross-border UAE deals therefore commonly choose English, DIFC or ADGM law with institutional arbitration, where limitation clauses behave predictably. A UAE onshore-law SPA works, but engages the Civil Code's good-faith and interpretation principles, which can treat exclusions and limitations differently. Choose based on where enforcement will actually happen — where the seller's assets are — not just drafting comfort.
How we help
Neo Legal drafts and negotiates SPAs on both sides of the table — warranty suites calibrated to diligence, specific indemnities with real security behind them, W&I processes, and governing-law strategy. Part of our M&A practice, alongside deal structuring and earn-outs.
This article is general information as at July 2026 and is not legal advice. Market terms move deal by deal; obtain advice on the specific transaction.
