Who keeps warranty liability after a trades business sells?

A trades business generally carries two different kinds of warranty at once, and buyers, sellers and their lawyers often blur them together in a way that creates real risk. There is the manufacturer’s warranty on the furnace, panel or roofing product itself, which travels with the equipment and is unaffected by who owns the installing business. Separately, there is the contractor’s own workmanship warranty — the promise that the installation itself was done properly — and that promise was made by a specific legal entity or person, not by the equipment.

A share sale generally keeps the promise where it was made

Where the sale is structured as a share purchase, the corporation that made the original workmanship warranty continues to exist, just under new ownership, so it generally remains on the hook for warranty claims on work it completed before the sale. This is one of the reasons buyers scrutinize a target’s warranty and callback history closely in a share deal — that history, and the liability behind it, comes along with the shares whether or not it shows up clearly on the balance sheet.

An asset sale usually leaves it behind, unless the agreement says otherwise

Where the sale is structured as an asset purchase, the buyer is acquiring specific assets and contracts, not the seller’s corporate history, so pre-closing workmanship warranty obligations generally stay with the selling entity unless the purchase agreement expressly has the buyer assume them. A buyer who wants to honour existing customer warranties for goodwill reasons can agree to do so, but that is a business decision made in the agreement, not something that happens automatically just because the buyer bought the tools and the customer list.

Why this belongs in the purchase agreement, not an assumption

Leaving warranty liability unaddressed in the agreement is one of the more common ways a seller discovers, months after closing, that customers are still calling them about a job the buyer now controls, or a buyer discovers it is being blamed for work it never performed. Spelling out, in writing, which entity is responsible for pre-closing workmanship claims, and for how long, avoids both problems and gives the buyer a clear basis to negotiate a holdback or indemnity if the seller’s callback history looks concerning.