Warranty and indemnity lawyer in Paris: negotiate, cap and enforce the GAP.

The warranty and indemnity agreement (GAP) is an agreement annexed to the sale and purchase agreement. It protects the buyer against liabilities predating closing that come to light afterwards and against assets overvalued at the date of signing. The Rennes court of appeal defines it as the clause that allows the transferee of shares not to fear an increase in liabilities or a decrease in the company's assets after the transfer, resulting from a fall in the value of the shares. The triggering event gives rise to compensation by the seller within the conditions and limits stipulated.

The standard duration for general warranties is between eighteen months and three years, aligned with the five-year general limitation period (Article 2224 of the French Civil Code). For tax and social-security representations, the duration is set by reference to the limitation period for administrative audits: three years for VAT and corporate income tax, and extended up to ten years for environmental matters. A GAP that is too short leaves the real risk uncovered; a GAP that is too long keeps the seller unduly exposed.

The standard SME market cap is 25% of the sale price, calibrated to the maximum risk estimated after the due diligence. The deductible is negotiated per claim or in aggregate. A per-claim deductible that is too high makes the GAP illusory, because no individual claim crosses the threshold. An aggregate deductible (de minimis) with a low per-claim threshold allows the trigger point to be reached sooner. The firm calibrates by calculation, not by copying precedent.

The representations classically cover the annual accounts (regularity and fair presentation), the tax position (corporate income tax, VAT, local taxes), the employment and social-security position (URSSAF, collective agreements, employment tribunal disputes), the contractual position (key contracts not terminated, no default), intellectual property (trademarks, patents, licences) and the environmental position. Each representation may be limited by a precise exclusion schedule on known risks.

The buyer discovers a triggering event (tax notice, employment tribunal dispute, supplier default). It first checks the coverage (representations, schedules, temporal scope). It then notifies the seller by a detailed and quantified registered letter within the contractual period (often eight days for tax and social-security matters, one month for other matters). The seller then has a period in which to reply. Failing agreement, the matter can be taken to litigation before the commercial court (tribunal de commerce).

The buyer in principle loses the benefit of the warranty. The Montpellier court of appeal confirmed in May 2025 that failure to comply with the notification clause leads to loss of the benefit of the warranty, although, under the clause at issue, forfeiture for late notification is incurred only if the lack of information made it impossible for the guarantor to present its defence. Forfeiture is applied strictly. The buyer therefore needs an internal protocol so that any notification received from a third party is passed on immediately to its counsel and to the seller.

When a third party brings proceedings against the target, the conduct-of-proceedings clause allows the seller to run the defence, directly or through its counsel. If the buyer has not given the seller that opportunity, it may lose the benefit of the GAP for those proceedings. The Bordeaux court of appeal clarified in November 2025 that the seller's mere challenge to the claim under the warranty does not necessarily amount to a waiver of the right to take part in the conduct of the proceedings, since a right cannot be waived by implication.

The escrow is the practical guarantee of payment of any compensation. Without an escrow, the GAP becomes a judgment to be enforced against a seller who may be insolvent when the liability comes to light. The escrow is sized to the GAP cap or to a fraction representing the risk (often 10 to 20% of the price). It is released gradually according to a contractual schedule: partial release at six months, full release at three years for commercial matters, extended for tax matters.

Yes. Share or business transactions regularly provide for a standalone tax warranty or a reinforced tax section in the general GAP. The duration extends to the limitation period for tax audits (three to ten years depending on the tax). Thresholds are calibrated differently, with a lower deductible given the certain nature of administrative reassessments. The drafting of this tax schedule determines the effective coverage of VAT, corporate income tax and URSSAF reassessments.

If the GAP period has expired, the buyer loses the contractual cover. What remains are actions based on fraudulent misrepresentation (Article 1137 of the French Civil Code), which make it possible to seek nullity of the sale or compensation where the seller intentionally concealed decisive information. In September 2024 the Commercial Chamber recalled that fraudulent concealment always makes the buyer's error excusable, even for an experienced buyer. The limitation period for an action for nullity runs from the discovery of the fraud.

Yes. The GAP is a contract; the seller may dispute each claim on the validity of the notification, the material and temporal scope of the warranty, the quantified amount of the loss, causation and the scope of the exclusion schedules. If the dispute is serious, the buyer must bring an action on the merits before the commercial court. An urgent application for an interim payment (référé-provision) is available only where there is no serious dispute, which is rare in GAP matters.

The limitation period is in principle five years (Article 2224 of the French Civil Code), running from the day on which the right-holder knew or should have known the facts enabling it to bring its action. The notification clause within the contractual period is a condition for the right to arise, independent of the limitation period. An action on the warranty therefore remains subject to the civil limitation period, but it can be brought only if the buyer has complied with the contractual claims procedure.

No. In a share sale, the GAP covers the liabilities of the company whose shares are sold. In a sale of a business, liabilities are not transferred to the buyer (unless expressly agreed), but a warranty may be stipulated on the value of the assets sold (customer base, goodwill, transferred contracts). In a sale of a business, the tax joint liability under Article 1684 of the General Tax Code applies independently of the GAP. Drafting adapted to each transaction structure is essential.

Yes by default, unless a clause provides otherwise. Pending litigation is generally listed in a schedule, and its treatment (who bears the outcome, who runs the defence) is set out in the sale and purchase agreement. If the GAP expressly excludes it, the buyer cannot obtain compensation for it. The drafting must therefore identify, line by line, the fate of pending proceedings, with a forward-looking calculation of the maximum risk.

Yes, and it is the most frequent route. A written settlement (Article 2044 of the French Civil Code) permanently extinguishes the claim through reciprocal concessions. The firm regularly leads the settlement negotiation with a quantified and documented memorandum, then drafts the settlement agreement coordinated with the release of the escrow. This route avoids the uncertainty of litigation and speeds up compensation. The strongest cases are resolved in three to six months.