The disclosure letter is a document annexed to the SPA in which the seller discloses to the buyer all facts and circumstances that may qualify or limit the representations and warranties given — contractual limitations, ongoing disputes, derogations from warranted standards. Its effect is to limit the seller's liability: matters correctly disclosed in the disclosure letter cannot subsequently be claimed as warranty breaches. Drafting the disclosure letter is a strategic and complex exercise: too narrow, it exposes the seller; too general, it dilutes warranty value for the buyer.

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Example: in a CHF 25.0 million sale, the disclosure letter reveals: an ongoing tax audit (estimated risk: CHF 150,000), two active commercial disputes (risks: CHF 80,000 and CHF 120,000), and a derogation to the client contract warranty (a major contract contains a change-of-control clause). These disclosures limit the seller's liability under the corresponding warranties — reducing the buyer's recoverable claim to the undisclosed portion of any loss.

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Hectelion analyses disclosure letters in due diligence to precisely measure the actual scope of warranties offered by sellers, which is often narrower than it appears.