The buyer is insisting on a ten percent indemnity escrow held back for two years, but we want a clean exit. How do we convince them to adopt Representations and Warranties insurance on a mid-sized deal and who pays the premium?

Question

Tyler Smith · Accepted Answer

An indemnity escrow held back for two years locks up a significant portion of your purchase price and exposes you to the risk of post-closing disputes. To achieve a clean exit, you should push for the use of Representations and Warranties insurance, which shifts the risk of operational and financial misrepresentations from your balance sheet to an insurance provider.

While buyers historically reserved this insurance for large enterprise deals, the market has evolved, and underwriting is now readily available for mid-sized transactions. To convince the buyer to adopt this structure, emphasize that it provides them with a higher limit of coverage and a longer survival period for claims than you would ever agree to personally. This gives them greater security while allowing you to walk away with nearly one hundred percent of your cash at closing.

When it comes to paying the premium, deal dynamics dictate the split. A common and fair compromise is to split the premium fifty-fifty between buyer and seller, or to adjust the purchase price slightly to cover the cost.

By presenting this as a win-win scenario during your negotiations, you protect your exit proceeds from being trapped in an escrow account. Bring this option to the table early, before the letter of intent is finalized, so the underwriting process can run parallel to your due diligence timeline without delaying the closing.