Can a seller demand that I indemnify them for events after closing?

An indemnity is a promise in the contract to cover the other side’s loss from stated events. A seller may ask for one covering things that happen after closing, but nothing obliges you to accept it. It exists only on the words you sign, so the drafting matters more than the label. Ask your lawyer to compare the buyer’s and seller’s indemnities side by side so neither is wider than the deal justifies.

Why a seller may ask

If the seller guaranteed a lease or a bank loan and stays liable after closing, they may ask you to cover any claim made against them for the period after you take over. That is a negotiating point, not a rule of law. If the seller was also a director or officer of the corporation you are buying, the Canada Business Corporations Act (s. 124) says a federal corporation may indemnify a former director or officer, subject to that section’s conditions, so ask whether that route covers the seller’s concern instead of a personal indemnity from you. Liability for the period before closing can also reach a buyer: for a purchase of a business’s assets, Ontario’s WSIB says it may hold the purchaser liable for all amounts owed by the vendor up to the date of sale if you do not get a valid purchase certificate. Ask how the agreement allocates risks like that one.

What to read in the clause

• Which events trigger it, and whether they are limited to events caused by you.
• Whether it is capped, and whether it expires.
• Who controls the defence of a claim, and whether you must be told promptly.
• Whether the seller must first try to recover from others, such as a landlord or insurer.

Time limits on indemnity claims

Under Ontario’s Limitations Act, 2002, for the purposes of s. 5(2) and s. 15, in a claim by one alleged wrongdoer against another for contribution and indemnity, the day the first alleged wrongdoer was served with the claim is deemed to be the day the act or omission on which that wrongdoer’s claim is based took place (s. 18). For business agreements, the Act also allows a limitation period other than the s. 15 ultimate period to be varied or excluded by an agreement made on or after October 19, 2006, and the s. 15 period to be varied subject to s. 22(4) (s. 22(5)). Check what your agreement says and what the governing province’s law provides.

For how these clauses sit in the whole contract, see the purchase agreement, clause by clause.