Indemnity cap and basket

How much of the price can the buyer claw back after closing?

Also called: Deductible · Tipping basket · Liability cap

Genuinely negotiated both ways

What it does

The basket sets a threshold below which claims are not recoverable. The cap sets the maximum the seller can be required to pay back. Together they define the seller's post-closing exposure.

Why it matters

These two numbers decide how much of the purchase price the seller actually keeps. A seller focused only on headline price can agree terms that put a substantial part of it back at risk for a year or more.

What to watch for

  • A tipping basket, where clearing the threshold makes the entire amount recoverable rather than only the excess
  • Fundamental representations carved out of the cap entirely, sometimes up to the full purchase price
  • Fraud carve-outs drafted broadly enough to swallow the cap
  • Survival periods running well beyond the escrow release
  • No materiality scrape, or a double materiality scrape favouring the buyer

What to ask for

  • A deductible basket rather than a tipping basket, so only the excess is recoverable
  • A cap set as a percentage of price, with the escrow as the sole recourse for general representations
  • Survival aligned with the escrow period, so exposure genuinely ends
  • Fundamental representations defined narrowly and exhaustively

What agreements actually say

Survival period for representations

Median 12 months across 53 agreements from 53 distinct filers. Most common value 12 months; range 6 months to 36 months. Found in 53 of 90 agreements examined.

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Agreements at each duration. n = 53.
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Indemnity cap, as a percentage of the purchase price

Measured, but not one number. Measured across 103 agreements from 97 filers, which clears the threshold. The values split into two groups rather than clustering. Indemnity caps bifurcate by design: general representations carry a low cap while fundamental ones are commonly capped at or near the whole purchase price. Two attempts to separate them by surrounding language failed, because proximity is not structure.

Escrow or holdback, as a percentage of the consideration

Not enough data yet. Found in 15 agreements from 14 distinct filers, below the 20-filer floor for publishing a figure. Counted by filer rather than by document, because one agreement is filed many times and repeat filings of a single deal are not twenty agreements.

How to read this. These describe agreements that USE THIS PARTICULAR LANGUAGE and are filed with the SEC. They are not a random sample of deals, and EDGAR is public companies only. Read as 'among agreements using this formula, the median is N' — never as 'the median deal'. Window: 2016-01-01 to 2025-12-31. Method: For each metric an exact formulaic phrase selects documents that contain the provision, and a deterministic regex anchored on that phrase extracts the value. No model is involved, and every observation behind a published figure is retained with its matched text and source URL so any number here can be checked or falsified.

How common is it

Documents filed with the SEC containing the exact phrase “indemnification basket”.

72019202020202120222023202412025
View as a table
YearDocuments
20197
20208
202120
20228
20236
20241
20251

Real filings using it

Source: SEC EDGAR full-text search (efts.sec.gov). Retrieved 2026-08-30. Counts are filed documents matching an exact phrase, not deals, and EDGAR indexes public-company filings — read these as public-company practice, not as evidence of what private mid-market agreements contain.

What usually gets agreed

A deductible basket with a cap tied to a defined escrow, and general representations surviving twelve to eighteen months, is a familiar structure. Fundamental representations surviving longer and at a higher cap is normal and usually not worth fighting.

Related

  • Earnout — Part of the price, payable later, contingent on the business hitting agreed targets.
  • Material adverse change — A condition letting a party terminate if something sufficiently bad happens between signing and closing.