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

Frequency/market practice: 20%-50% as common for business warranties, especially on auction sales. Fundamental warranties are limited at 100%. Any leakage from locked box to the seller's benefit have to be reimbursed on a dollar-for-dollar basis post-closing if identified before the typical limitation period of 3 to 12 months.

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

Frequency/market practice: Both seen regularly although buyers resist the whole agreement.

What are the common exceptions to the cap?
Frequency/market practice: Fundamental warranties are sometimes accepted (e.g., title, capitalization, authority). Often, tax and specific areas of concern are also accepted, sometimes with specific higher caps. Separate for fundamental, tax and business warranties caps can be negotiated.
Is a deductible or basket common?
Frequency/market practice: Deductible is usually resisted and a tipping basket is more common.
Is a de minimis common?

Frequency/market practice: Fairly common: 0.1-0.3% for individual claims and 1-3% on basket claims.

How long does seller liability survive?

Frequency/market practice: This is tied to one, and in rarer cases two, full year audit. Tax is commonly tied to the statutory limitation period (generally four years for Singapore income tax, and five years for Singapore goods and services tax, subject to exceptions). Title/capacity warranties usually have a longer period or are based on statutory limitations period (six years for Singapore). Locked box liability is typically limited to between three and 12 months.

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

Frequency/market practice: Fraud is usually carved out. Tax is commonly longer (three to four years for Singapore) than general warranties.

Is warranty insurance common?
Frequency/market practice: Used in private equity exits, becoming more common. Coverage options for warranty insurance products are increasing and in some instances, can be adapted to cover specific identified risks.