We are reviewing the first draft of the purchase agreement and the buyer has proposed a first-dollar basket for indemnification claims. How do we negotiate a tipping or deductible basket to protect ourselves from being nickeled-and-dimed over minor post-closing claims?

Question

Tyler Smith · Accepted Answer

A first-dollar basket is a major trap because it means that once the buyer accumulates minor claims that collectively cross a small threshold, they can claw back every single dollar from your escrow, starting from the very first penny. To protect yourself, you must negotiate a deductible basket instead. A deductible basket works like insurance. If you agree to a fifty-thousand-dollar deductible basket, the buyer must absorb the first fifty thousand dollars of any losses themselves. They can only make a claim against your escrow for losses that exceed that threshold. This completely eliminates their ability to nickel-and-dime you over tiny, routine post-closing operational adjustments. Alternatively, you can propose a tipping basket, where the buyer can recover the full amount of losses once the total exceeds the threshold, but couple it with a high de minimis threshold for individual claims. Under this structure, any individual claim that is worth less than, say, five thousand dollars is completely ignored and does not count toward the basket. By establishing clear thresholds, de minimis limits, and a deductible structure, you ensure that the post-closing period is not consumed by minor operational disputes, protecting your escrow and ensuring your transition is clean and professional.