Global Private M&A Guide - Limited External Content

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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: Commonly less than 50%. Mid-cap and larger deals see lower caps, e.g., 10%-30%.

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

Frequency/market practice: Usually warranties only.

What are the common exceptions to the cap?

Frequency/market practice: Fundamental warranties are often exempt (e.g., title, capitalization and authority). Often, tax and specific areas of concern, sometimes with specific higher caps, may be exempt.

Is a deductible or basket common?

Frequency/market practice: A deductible is more often resisted and 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: General survival of 12 to 18 months is very common.

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

Frequency/market practice: Tax is commonly longer than general warranties. Fundamental warranties are usually subject to a longer warranty period. It is common to carve out fraud.

Is warranty insurance common?

Frequency/market practice: It is standard in private equity exits and also becoming more common where private equity is not involved.

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