The buyer is pushing for an uncapped indemnity liability for general representations and warranties, arguing it is standard for our industry. How do we negotiate a reasonable cap and survival period that protects our proceeds after the keys are handed over?

Question

Tyler Smith · Accepted Answer

A buyer's demand for uncapped indemnity liability for general representations and warranties is a massive red flag. It exposes your personal wealth to unlimited post-close claims, effectively allowing the buyer to claw back the purchase price for minor operational variances.

You must draw a hard line between fundamental representations, which cover title, authority, and taxes, and general representations, which cover standard operations. Fundamental representations can have higher caps, often up to the full purchase price, and longer survival periods. General representations, however, must be capped at a small fraction of the deal value, typically ten to fifteen percent.

Negotiate a survival period for general representations of twelve to eighteen months. This gives the buyer sufficient time to complete one full audit cycle and identify any genuine historical issues. Anything discovered after this period must be their responsibility.

Additionally, insist on a basket or deductible structure. This ensures the buyer cannot bring claims against you until the aggregate value of those claims exceeds a meaningful threshold. By establishing these clear boundaries, you protect your post-close cash and prevent the buyer from using indemnity claims as a tool to retroactively discount your business.