Basket / Deductible
A contractual threshold below which a buyer cannot recover indemnification for breaches of seller's representations and warranties. The basket aligns indemnification with material rather than trivial breaches.
A basket (sometimes called a "deductible") is a contractual threshold below which a buyer cannot recover indemnification for breaches of seller's representations and warranties. The basket aligns indemnification with material rather than trivial breaches, sparing the parties the cost of disputing small claims.
Two structures
Tipping basket (also called "first-dollar"): once aggregate losses exceed the basket threshold, the buyer recovers all losses from the first dollar, including the threshold amount. Buyer-favorable.
Deductible basket (also called "true deductible" or "non-tipping"): once aggregate losses exceed the threshold, the buyer recovers only the amount above the threshold. The buyer bears losses up to the threshold. Seller-favorable.
The choice between structures is one of the most consequential basket-related negotiations.
Per-claim minimums (the "mini-basket" or "de minimis")
Many agreements also set a per-claim minimum. Claims below that amount do not count toward the basket.
Typical sizing
Basket size is negotiated and is often measured as a percentage of the purchase price. Agreements commonly provide that the basket does not apply to claims for breach of fundamental reps, fraud, special indemnities, or covenant breaches, and many also exclude tax reps.
The basket structure interacts with representations and warranties insurance. An RWI policy has its own retention, and the parties often size the basket with the retention in mind so that the buyer, the seller, and the insurer each know which layer of loss they bear.
Companion article: Selling Your Business in Texas