- A typical no-litigation closing condition requires the seller to confirm, as of the closing date, that no new legal proceeding, investigation, or written threat of one has arisen against…
- Litigation history is a standard due diligence category on any business purchase, alongside financial statements, contracts, and licences — but due diligence is a snapshot taken before…
- In practice, confirmation usually happens through: 1.
Signing a purchase agreement and closing the deal are rarely the same day. In the days, weeks, or months between them, life at the business keeps happening — including, occasionally, a new lawsuit, regulatory complaint, or legal claim the buyer never bargained for. The no-litigation closing condition exists to make sure the buyer isn't forced to close on a business that has picked up new legal exposure since the deal was signed.
This condition sits alongside, but isn't the same as, the seller's representations about existing litigation made at signing. It specifically asks: has anything changed since then? This article explains what the condition typically covers, how it gets confirmed at closing, and how it interacts with the rest of the purchase agreement.
What the Condition Actually Confirms
A typical no-litigation closing condition requires the seller to confirm, as of the closing date, that no new legal proceeding, investigation, or written threat of one has arisen against the business since the purchase agreement was signed — and often, that no order or injunction is in effect that would block or restrict the transaction itself.
This is distinct from the seller's litigation representations made earlier in the agreement, which describe the state of legal claims as of signing and are qualified by the disclosure schedule. The no-litigation closing condition asks the same question again, but as of closing, catching anything that emerged in between.
Why Buyers Ask for It
Litigation history is a standard due diligence category on any business purchase, alongside financial statements, contracts, and licences — but due diligence is a snapshot taken before signing. A buyer negotiating a no-litigation condition is protecting against:
- A customer or supplier dispute escalating into a formal claim after the deal is signed
- A former or current employee filing a complaint or claim
- A regulator opening an investigation into the business
- A third party seeking an injunction against the transaction itself, for example over a disputed contract or asset
How It Gets Confirmed at Closing
In practice, confirmation usually happens through:
- A bring-down certificate — a document signed by the seller at closing confirming that its representations, including the litigation representation, remain true as of the closing date, not just as of signing.
- An updated disclosure schedule, if anything material has changed and the parties agree to proceed with that change disclosed and addressed.
- A direct closing condition in the purchase agreement itself, giving the buyer the right to delay or refuse to close if the condition isn't satisfied.
What Happens If New Litigation Does Show Up
If a genuine new claim surfaces before closing, the purchase agreement generally gives the parties a few paths, depending on how it was drafted:
- The buyer can refuse to close until the matter is resolved or addressed.
- The parties can negotiate an indemnity or holdback specifically tied to the new claim, allowing the deal to close with financial protection in place.
- The buyer can walk away entirely, if the closing condition was drafted to allow it and the matter is serious enough.
Not every new claim will be significant enough to justify any of these responses — a purchase agreement will often set a materiality threshold, so that a minor, low-value dispute doesn't derail an otherwise sound transaction.
No-Litigation Condition vs Related Protections
| Protection | What it addresses | When it applies |
|---|---|---|
| Litigation representation (at signing) | Existing claims and disputes as of signing | Made once, at signing |
| No-litigation closing condition | New claims or threats arising after signing | Re-confirmed at closing |
| Indemnity provisions | Financial responsibility if a claim later causes loss | Applies after closing, for a defined period |
These work together as layers, not substitutes. A well-drafted agreement uses all three to manage litigation risk across the entire life of the deal, from signing through to well after closing.
Frequently asked questions
What counts as "litigation" for this kind of clause?
It's usually drafted broadly enough to capture lawsuits, arbitrations, regulatory investigations, and sometimes written threats of a claim, not just a filed court proceeding. The exact scope depends entirely on how your purchase agreement defines it, so the definition itself deserves careful review.
Does a minor customer complaint trigger this condition?
Not necessarily. Most no-litigation conditions are tied to a materiality threshold or specifically exclude routine, low-value disputes that don't threaten the value of the business. Whether a specific situation crosses that line is a judgment call your lawyer can help you make.
Can the seller just settle a new claim quietly before closing?
This is exactly the kind of situation the purchase agreement should anticipate, since a quiet settlement could still affect the business's value or create ongoing obligations the buyer should know about. A well-drafted agreement requires disclosure of any settlement, not just the underlying claim.
Is a no-litigation condition standard, or only for larger deals?
It appears across deals of many sizes, since any business, large or small, can pick up a new dispute in the weeks between signing and closing. How it's worded and how strictly it applies is a negotiated point worth tailoring to your specific transaction.
This is a business purchase or sale question
Start a file online — flat, published fees, reviewed by a licensed Ontario lawyer before a dollar is owed.