In high-stakes business transactions – whether in mergers and acquisitions, securities offerings, or large-scale real estate deals – clarity, transparency, and risk mitigation are vital. Among the legal tools used to manage expectations and allocate risk, the non-reliance letter is often underestimated. Yet, this document plays a critical role in protecting parties from liability and ensuring that each side performs proper due diligence before closing a deal.
This guide explores the legal function, purpose, and practical value of non-reliance letters, providing essential insights for lawyers, investors, and business decision-makers.
What Is a Non-Reliance Letter?
A non-reliance letter is a legal document that explicitly states that one party (usually the recipient of information) agrees not to rely on certain statements, representations, or forecasts provided by the other party when entering into a transaction. It serves to:
-
Prevent claims of misrepresentation or negligence,
-
Reinforce the necessity of independent verification,
-
And limit reliance on forward-looking or unaudited information.
By signing the letter, the recipient acknowledges that they must conduct their own due diligence and should not treat informal or pre-contractual information as binding or conclusive.
Key Functions of a Non-Reliance Letter
1. Managing Expectations and Disclaiming Liability
Non-reliance letters set clear expectations between parties, especially when sharing projections, strategic plans, or unaudited data. They clarify that such materials are shared for informational purposes only and may contain uncertainties.
2. Encouraging Independent Due Diligence
The letter reinforces that recipients must undertake their own assessments. It supports the legal principle that buyers or investors bear responsibility for independently evaluating the material risks associated with a deal.
3. Limiting Legal Exposure
Sellers, issuers, or service providers use non-reliance letters to avoid potential litigation arising from reliance-based claims. This includes claims under misrepresentation, breach of warranty, or negligent misstatement.
4. Supporting Contractual Clarity
These letters complement other transaction documents by making it clear that only formal representations in the final contract should be relied upon—not preliminary exchanges or marketing materials.
When Should You Use it?
Non-reliance letters are especially relevant in scenarios where one party may later claim that they were misled or inadequately informed. Common applications include:
Mergers and Acquisitions non-reliance letter (M&A)
When a seller shares financial forecasts or strategic plans during the due diligence phase, a non-reliance letter helps prevent liability if these projections fail to materialize post-acquisition.
Securities Offerings
In IPOs or private placements, companies often issue investor presentations or management forecasts. Non-reliance letters protect issuers by making it clear that investors are responsible for forming their own conclusions.
Commercial and Real Estate Transactions
Sellers may provide property valuations, environmental reports, or lease summaries. A non-reliance letter ensures buyers independently verify these materials and disclaims liability for any inaccuracies.
Financial Services and Lending
Banks and lenders may share indicative terms or financial models with borrowers. Non-reliance letters confirm that such information is illustrative and does not constitute a formal offer or commitment.
Who Benefits from a Non-Reliance Letter?
Buyers and Investors
They are reminded to seek legal and financial advice and to perform robust due diligence. This ultimately promotes better decision-making and protects against over-reliance on informal assurances.
Sellers, Issuers, and Borrowers
They benefit from a reduced risk of being sued over informal or forward-looking statements, especially in dynamic or uncertain markets.
Lenders and Financial Advisers
Professionals who provide indicative materials can shield themselves from potential liability by ensuring that clients acknowledge the limitations of such content.
To download our professionally drafted Non-Reliance Letter Template, please click the image below.
This template is ideal for businesses and individuals seeking a legally sound, customisable document.
Documents Commonly Used with a Non-Reliance Letter
To strengthen the risk management framework, non-reliance letters are often paired with:
-
Non-Disclosure Agreements (NDAs): To ensure that shared materials remain confidential.
-
Disclosure Statements: Clarifying the limits and assumptions behind the information provided.
-
Indemnity Agreements: Shifting certain risks and liabilities contractually.
-
Representation and Warranty Agreements: Detailing binding commitments made within the final contract.
-
Due Diligence Checklists: Encouraging recipients to actively verify critical information before proceeding.
Practical Examples in Business Contexts
Non-reliance in M&A Transactions
A target company shares a five-year revenue forecast with a potential buyer. The accompanying non-reliance letter ensures that the buyer cannot later sue the seller for discrepancies, especially if the deal fails to deliver expected returns.
Non-reliance in IPO and Capital Raises
A startup preparing for an IPO shares pitch decks and management commentary with potential investors. The non-reliance letter makes clear that these materials are non-binding and that the investment decision must rest on official filings.
Non-reliance in Commercial Property Sales
A seller provides a valuation and rent roll for a commercial building. A non-reliance letter clarifies that these are provided for guidance only, and buyers must independently verify all assumptions and figures before completing the transaction.
Final Thoughts: Why a Non-Reliance Letter Matters
In a legal and commercial landscape where risk is shared but litigation is common, the non-reliance letter plays a vital role. It helps manage legal exposure, reinforces professional due diligence, and ensures that business decisions are based on verified, reliable information.
Incorporating non-reliance letters into your transactional framework is not just best practice—it’s a strategic legal safeguard. When used correctly, they promote transparency, reduce disputes, and protect both parties in the event of future misunderstandings.
Are you drafting or reviewing a business deal? Ensure your documents are complete, accurate, and enforceable. Non-reliance letters should never be an afterthought—they are a key part of smart legal and commercial risk management.
Related Resources:
Unilateral Non-Disclosure Agreement (NDA) Template
Mutual Non-Disclosure Agreement (NDA) Template
Risk & Liability Documentation Pack
Transaction Assurance Templates Pack
For those seeking further expert advice on risks and legal safeguards in commercial contracts, the Law Society provides comprehensive guidance on best practices in business transactions, which can be accessed here.
