Time Limits on Indemnity Claims in an Ontario Business Sale Agreement

An indemnity right in a purchase agreement isn't permanent. It runs on a clock — usually more than one clock, depending on what kind of promise was broken — and once that period expires, the right to claim generally expires with it, no matter how legitimate the underlying loss turns out to be. Buyers who assume they have unlimited time to discover a problem are often surprised, sometimes expensively, to learn otherwise.

This article explains why indemnity claims have deadlines, why different promises get different deadlines, and what a buyer should actually do to protect a claim before time runs out.

Why Indemnity Claims Have Deadlines at All

From a seller's perspective, an indemnity that could theoretically be triggered years or decades after closing — for a breach that may be difficult to disprove that far removed from the transaction — is an unattractive, open-ended risk. Survival periods exist to give sellers a defined point at which they can consider the deal genuinely closed, while still giving buyers a reasonable window to discover problems that reasonably surface after closing.

The survival period is a creature of contract, not a fixed rule imposed by law. It's negotiated between the parties and written directly into the purchase agreement — which means the only reliable way to know your deadline is to read your specific agreement, not to assume a standard period applies.

Different Promises, Different Clocks

Purchase agreements rarely apply a single survival period to everything. It's standard practice to tier representations and warranties by risk and negotiate a different period for each category:

• General/business representations — covering day-to-day matters like contracts, employees, or operations — often get a comparatively shorter survival period, since these risks are expected to surface relatively soon if they exist at all.
• Fundamental representations — such as the seller's authority to sell, title to the shares or assets, and corporate existence — often get a longer survival period, or in some agreements no fixed survival period at all, because a defect here undermines the whole transaction.
• Tax representations — often tied to when the relevant tax authority's own reassessment window closes, rather than a fixed number negotiated independently.
• Special indemnities for a specific known issue — often tied to when that particular issue is actually resolved, rather than a calendar deadline at all.

Because these periods vary by category and by deal, there is no single "typical" survival period that applies across Ontario business sales — treat any general figure you hear as a starting point for negotiation, not a rule.

What Happens If You Miss the Deadline

Missing a survival-period deadline is usually fatal to the claim, even where the underlying facts would otherwise support it. Two consequences tend to follow:

1. The indemnity right itself lapses. Once the survival period for a category of representation ends, a claim first raised afterward generally can't proceed under that indemnity, regardless of the claim's merits.
2. Any related holdback is typically released. Purchase agreements commonly tie the release of a holdback or escrow to the expiry of the relevant survival period — meaning the money that would have funded your claim may already be back with the seller by the time you realize there's a problem.

Separately from the contractual survival period, general Ontario limitation periods for civil claims can also apply to certain disputes and may interact with — but don't necessarily extend — a shorter contractual deadline. This interaction is genuinely technical and deserves a lawyer's review rather than assumption in either direction.

How Survival Periods and Holdbacks Interact

Protecting Yourself as a Buyer

• [ ] Read the indemnification section of your purchase agreement immediately after closing, not only when a problem arises — know your deadlines before you need them.
• [ ] Calendar every survival-period deadline by category (general, fundamental, tax, special indemnities) with a reminder well in advance of expiry.
• [ ] Build ongoing post-closing monitoring into your first year of ownership, since problems often surface only once you're running the business day to day.
• [ ] If you spot a potential issue close to a deadline, get legal advice immediately rather than waiting to fully quantify the loss — many agreements only require a good-faith estimate to preserve the claim.
• [ ] Track any holdback or escrow release date separately, since it may arrive before or independently of a representation's survival period.

Frequently asked questions