During deal structuring, the buyer is demanding that our tax and environmental representations survive indefinitely, while other general representations survive for two years. How do we structure the definitive agreement to limit our long-term post-close liability?

Question

Tyler Smith · Accepted Answer

Indefinite survival periods for representations and warranties represent a massive long-term risk because they leave you exposed to potential lawsuits years after you have walked away from the business. You must negotiate hard to bring these timelines down to reasonable market standards. While buyers typically request longer periods for fundamental representations like ownership, tax, and environmental compliance, indefinite is rarely acceptable. For tax representations, you should negotiate a survival cap tied directly to the applicable statute of limitations plus a short period of perhaps sixty days. This ensures that once the government can no longer audit or challenge a tax year, your liability for that year permanently ends. For general operational representations, push to reduce the survival period to twelve or eighteen months. This is long enough for the buyer to run the business through one full annual operating cycle and identify any material issues, without keeping your post-close life in limbo. To further protect yourself, insist on a clear cap on liability for general representations, typically capped at the size of the indemnity escrow, which is usually five to ten percent of the purchase price. By setting clear survival boundaries and caps, you ensure a clean exit and protect your hard-earned wealth from tail-risk liabilities.