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: Title and capacity warranties are usually uncapped or capped at 100%. Business and operational warranties are often in the range of 20% to 50%.

Does the cap (and other liability limitations) apply to the whole agreement or just warranties (or particular terms)?

Frequency/market practice: Warranties only. Sellers with a strong bargaining position (typically in auction processes) ask for the cap to apply to the whole agreement.

What are the common exceptions to the cap?

Frequency/market practice: Key warranties are often excepted or capped at 100% of the purchase price (e.g., title, capitalization and authority). Tax and other specific areas of concern may also be excepted or specific higher caps may be applied. Separate caps can be negotiated.

Is a deductible or basket common?

Frequency/market practice: Fairly common. This is determined on a case-by-case basis, and it depends on the industry and target in question.

Is a de minimis common?

Frequency/market practice: Fairly common.

How long does seller liability survive?

Frequency/market practice: A general survival of 18-24 months is common, tied to one to two audit cycles. Tax is commonly seven years, which ties to the tax audit statutory limitation period.

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

Frequency/market practice: It is common to carve out fraud.

Is warranty insurance common?

Frequency/market practice: Only common if financial sponsors are involved (either as a buyer or seller).