Anti-Sandbagging Clause

Sandbagging is when a buyer discovers during diligence that one of your representations is inaccurate, says nothing, closes anyway, and then files an indemnification claim over the issue it already knew about. An anti-sandbagging clause shuts that down: the seller has no liability for any breach the buyer knew of at closing. This is one of the most contested provisions in the purchase agreement. PE buyers almost always push for the opposite — a pro-sandbagging clause that preserves their right to claim regardless of what they knew — arguing the seller must stand behind its reps no matter what. The seller's counter is fairness: a buyer that found a problem in diligence and stayed silent shouldn't get to convert that silence into a post-close price cut. Where the contract is silent, the default is unsettled and varies by state, which is itself a reason to negotiate the point head-on rather than leave it to a court. For a seller with leverage, strong anti-sandbagging language is a real win; a have-to-sell founder often ends up accepting pro-sandbagging terms with personal indemnification attached. Either way, knowing which way the clause cuts before you sign is the difference between a clean exit and a lawsuit twelve months later.