Define: Disclosure Letter

What Disclosure Letter Means in a Contract

A disclosure letter is a formal written statement, usually prepared by a seller or warrantor and addressed to a buyer or investor, that sets out facts, exceptions, and qualifications relevant to the warranties contained in the main transaction agreement. Rather than deleting or softening a warranty, the party giving warranties uses the disclosure letter to say, in effect, that a particular statement is not fully accurate because of a disclosed matter, and that the other party is treated as knowing about it before signing.

In commercial practice, disclosure letters are closely associated with share purchase agreements, investment agreements, and business sale agreements. The letter is almost always described as being in an agreed form, meaning both parties have reviewed and approved its content before it is executed, and it is delivered immediately before or at the same time as the main agreement is signed. This timing is deliberate, since disclosures made too early or too late can lose their protective effect.

How Disclosure Letter Is Defined or Measured

Unlike terms that can be measured numerically, a disclosure letter is defined by reference to its form, timing, and the standard of disclosure it must meet. Most agreements specify whether disclosure must be fair, meaning the information must be disclosed with sufficient clarity and detail that a reasonable buyer, or its advisers, could identify the matter and assess its significance, rather than being buried in an attachment without explanation.

The letter typically has two structural elements: a general section containing broad statements, such as references to matters on public record, and a specific disclosures section that addresses individual warranties one by one, often cross-referenced by clause or schedule number. Accompanying documents, sometimes called the disclosure bundle or data room index, are frequently appended or referenced to support the specific disclosures.

• General disclosures covering matters of public record or general knowledge
• Specific disclosures tied to individual warranty clauses
• Supporting documents or data room references incorporated by reference

Where Disclosure Letter Appears in Agreements

The disclosure letter is referenced directly in the warranties clause of the main agreement, which will typically state that warranties are given subject to matters fairly disclosed in the disclosure letter. It also appears in definitions sections, where it is described, as in this entry, as the agreed form letter executed and delivered immediately prior to execution of the agreement.

This term appears most commonly in mergers and acquisitions, private equity investment rounds, and corporate finance transactions across industries such as