Meaning
Provision in a purchase agreement extending the period during which a party can seek recovery for losses. The period of indemnity claim survival is often longer for fundamental breaches like ownership of shares than for general commercial warranties.
Limitation Period
Statutory limits on bringing a lawsuit are often modified by the specific language of the acquisition agreement. Negotiating a shorter indemnity claim survival allows the seller to distribute proceeds and close the books without the risk of long term contingent liabilities.
Breach Remedy
Filing a written notice of a potential loss must occur within the agreed timeframe to be valid. If the notice is delivered after the indemnity claim survival has expired, the buyer loses the right to seek compensation for the underlying breach.
Sunset Provision
Sellers might accept a longer period in exchange for a higher cap on the total damages payable under the contract. This trade off allows the buyer to investigate complex tax or environmental issues over several years. Parties document the indemnity claim survival in the disclosure letter or the main purchase agreement to clarify the boundary of the post closing risk.
This certainty helps the buyer secure insurance for the transaction.
