Limitations on liability
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Limitations on liability Start Comparison
What is the common cap amount (as a percentage of purchase price)?

Frequency/market practice: This depends on deal size. The buyer may ask for 100% but it is almost always negotiated down. The cap ranges from 10% to 100% of purchase price.

Does the cap (and other liability limitations) apply to the whole agreement or just warranties (or particular terms)?
Frequency/market practice: Both are seen regularly.
What are the common exceptions to the cap?

Frequency/market practice: Fundamental warranties are often excepted (e.g., title, capitalization, authority). Tax and specific areas of concern are also often excepted, sometimes with specific higher caps. Separate caps can be negotiated.

Is a deductible or basket common?

Frequency/market practice: Fairly common; they are becoming more accepted in the market. Whether or not there is a deductible is very much decided on a case-by-case basis.

Is a de minimis common?
Frequency/market practice: This is fairly common.
How long does seller liability survive?

Frequency/market practice: This is decided on a case-by-case basis in the range of anywhere between six and 24 months. If a tax indemnity is included, tax matters usually survive until a short period after the Statute of Limitations, i.e., the period in which tax authorities can audit the target.

Are there any common carve-outs from limitation on seller liability (e.g., fraud, tax, key warranties)?

Frequency/market practice: Common carve-outs include fraud and certain fundamental representations and warranties (e.g., authority, capitalization, due organization and title). Other specific areas that are commonly excluded include tax and the environment.

Is warranty insurance common?

Frequency/market practice: Rarely; it is generally not common, but has been used (e.g., in private equity exits) and is gaining popularity.