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: Very common; the common cap amount is typically between 10%-50%. Title to shares is almost always capped at the amount of the purchase price.

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

Frequency/market practice: Very common; the maximum liability cap applies to all of the seller's obligations under the agreement. Other than in relation to warranties, de minimis thresholds and basket liability caps do not apply.

What are the common exceptions to the cap?

Frequency/market practice: Tax liability, leakage, confidentiality and noncompete undertakings or specific indemnities are often exempted. Liability under these undertakings is often not capped or made subject to a specific regime (sometimes with specific higher caps).

Is a deductible or basket common?

Frequency/market practice: Very common; deductible is usually resisted. A tipping basket is more common.

Is a de minimis common?

Frequency/market practice: Very common

How long does seller liability survive?

Frequency/market practice: A general survival of 18–24 months for business warranties is common. For fundamental warranties it is often three or five years, and for tax liabilities often seven years.

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 key warranties (e.g., title, capitalization, authority, tax, employment and environmental) as well as fraud.

Is warranty insurance common?

Frequency/market practice: Very common; it is considered in most deals unless either: (i) the transaction size is too small in light of the insurance premium; or (ii) the target industry is heavily regulated in which case it is more challenging to obtain W&I insurance.