Escrow

Also known as: Escrow holdback, purchase price holdback, indemnity escrow

A portion of the purchase price held by a third party after closing to satisfy potential indemnification claims. Typically 5-15% of purchase price, held for 12-24 months.

WHY IT MATTERS

Instead of trusting the seller to pay indemnification claims later, the buyer demands that a portion of the purchase price go into escrow at closing. If the buyer has valid claims during the survival period, they get paid from the escrow. Whatever's left gets released to the seller when the period ends. The danger: some deals require ALL claims to be resolved before ANY escrow is released. The buyer can use pending claims (real or manufactured) as leverage to drag out release or negotiate down. Partial release provisions are seller-friendly; all-or-nothing escrow is buyer-friendly.

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