Warranties and Indemnities in a Cyprus Share Purchase Agreement

Two Promises That Look Alike

A warranty is a statement of fact: the company has no undisclosed tax liabilities, the accounts give a true and fair view, the litigation schedule is complete. If the statement turns out false, the buyer has a claim for breach of contract, and everything about that claim, what must be proved, what can be recovered, runs through the ordinary rules of contract damages.

An indemnity is a different instrument: a free-standing promise to make a defined loss good if a defined event happens. "Any tax assessed after completion for a period before it" does not ask whether anyone said anything false. If the event occurs, the obligation to pay arises, on the terms the clause itself sets.

What a Warranty Claim Is Actually Worth

Under the Contract Law, Cap. 149, damages for breach compensate the loss that arose naturally from the breach or was in the parties' contemplation when they contracted, and remote or indirect loss is not recoverable. The Supreme Court has long treated this as the codified form of the classic English rule on contract damages, so the analysis will feel familiar to anyone who has run a warranty claim elsewhere in the common-law world.

For share warranties, the usual measure is the difference in value: what the shares would have been worth had the warranty been true, against what they were actually worth. That gap is not automatically the cost of fixing the problem, and it is never automatically the price paid. The buyer also carries a duty to take reasonable steps to reduce the loss, because the law takes account of the means available to remedy the situation.

A warranty claim is an argument about value, evidence and foreseeability. An indemnity claim is an invoice with a contractual basis. That single difference drives most SPA negotiations.

Why Indemnities Are Fought Over

Because the indemnity skips the hard parts. There is no need to prove any statement false; the covered event itself triggers payment. Recovery is defined by the clause, not by remoteness, and runs pound for pound. Whatever duty to mitigate applies is the one the clause imposes, and caps apply only if negotiated. Sellers resist indemnities for precisely the reasons buyers want them, which is why they are usually confined to the risks due diligence actually identified: the known tax exposure, the pending dispute, the environmental question nobody could close out.

One honest note on the law: the warranty and indemnity distinction operates in Cyprus through the common-law approach that Cyprus contract law follows, and the leading Cyprus authorities are on the damages rules generally rather than on SPA mechanics specifically. The practice is settled; the drafting should still assume the clause will be read exactly as written.

The Disclosure Letter Is the Real Battlefield

A warranty is qualified by what the seller disclosed against it: a matter fairly disclosed cannot later found a warranty claim. That makes the disclosure letter, prepared in the final days when everyone is tired, one of the most consequential documents in the deal. For the seller, thorough disclosure converts warranty exposure into a priced fact. For the buyer, every disclosure is a prompt to renegotiate: a price adjustment, a specific indemnity, or a condition to completion.

Limits, Caps and Time

The liability architecture around the warranties is negotiated as hard as the price: overall caps, thresholds and baskets before a claim can be brought, and contractual deadlines for bringing claims that are typically far shorter than the statutory limitation period. Cyprus law respects clauses fixing agreed sums within the limits the Contract Law sets, and treats the contractual claim periods as part of the bargain. The buyer's discipline after completion is therefore procedural as much as legal: diarise the claim windows, notify precisely as the clause requires, and preserve the evidence of value.

What the Buyer Checks Before Signing

Whether every risk found in due diligence is answered somewhere: warranty, indemnity, price or condition. Whether the warranties are given on the right knowledge basis, and by people worth suing. Whether caps and baskets leave a claim worth bringing. And whether the seller behind the promises will still be solvent when a claim matures, because a warranty from an empty shell is decoration. How this fits the wider transaction is on our buying or selling a business page, and if a claim has already surfaced, the route is through commercial disputes.

Frequently Asked Questions

The seller breached a warranty but the company is still profitable. Do I have a claim?

Possibly: the measure is the difference between the value of the shares as warranted and their actual value. Profitability does not erase that gap, but you will need evidence of value, usually expert evidence, and a loss that the damages rules recognise.

Is an indemnity always better for the buyer than a warranty?

For an identified risk, usually yes: it pays on the event, without the arguments about value and foreseeability. But sellers concede indemnities narrowly, and an SPA made only of indemnities would not be signed. The craft is matching the instrument to the risk.

We missed the contractual deadline for warranty claims. Is it over?

The contractual claim periods are part of the bargain and are taken seriously. Whether anything survives depends on the clause's exact words and the nature of the claim, so have the documents reviewed before drawing conclusions, quickly.

Related Reading

Buying or Selling a Business in Cyprus

Commercial Disputes in Cyprus

Commercial Contracts in Cyprus

By Klitos Platis, Advocate

Klitos advises on litigation, corporate and commercial law, real estate, construction and energy at Kleanthous & Platis LLC in Nicosia.

This article is for general information only and does not constitute legal advice. Laws and their application can change, and individual circumstances differ. For advice on your own matter, contact Klitos Platis at klitos@kleanthousplatis.com or telephone +357 22 680 330.

Klitos Platis

Advocate, Partner

Kleanthous & Platis LLC, Nicosia · Published 3 August 2026