Introduction

An exit is exciting, but it is also full of hidden risks. When granting representations and warranties, you commit to covering undisclosed liabilities after closing. The question is: how far should that responsibility go? Smart negotiation means defining clear limits upfront, so you protect your future without killing the deal.

Why limiting liability matters

Every sale carries uncertainty. Tax claims, social security issues, environmental risks or litigation can surface months after closing. Without clear boundaries, your exposure can spiral. Limiting liability is not about avoiding responsibility, it is about creating a fair and predictable framework for both sides.

What types of liabilities can arise after closing?

After closing a sale, several categories of liabilities may surface, often unexpectedly. These include:

- Tax liabilities: Unpaid taxes, incorrect filings, or disputes with tax authorities that relate to periods before the sale.

- Social security claims: Outstanding social contributions, employee benefit issues, or misclassification of workers.

- Environmental risks: Pollution, hazardous waste, or non-compliance with environmental regulations that may trigger fines or remediation costs.

- Litigation: Pending or potential lawsuits, contractual disputes, or claims from customers, suppliers, or employees.

- Regulatory breaches: Non-compliance with industry-specific laws, data protection, or licensing requirements.

- Product liability: Claims related to defective products or services delivered before closing.

- Hidden debts: Undisclosed loans, guarantees, or off-balance-sheet obligations.

- Intellectual property issues: Infringement claims, missing assignments, or disputes over ownership.

- Other contingent liabilities: Any risk that was not identified or disclosed during due diligence, such as warranty claims or insurance gaps.

Key levers to reduce exposure

Here are the most effective tools to keep your risk under control:

- Deductible (franchise): Claims below a set threshold are not indemnifiable.

- Cap: Maximum indemnity amount for all warranties combined.

- Coverage period: Often 12–24 months for general warranties, with separate periods for tax, social, or environmental risks that track statutory limitation periods in Belgium.

- Exclusions: Indirect damages, hypothetical losses or changes in law post-closing.

- Strict notice procedure: Formality, timing and content required for valid claims.

- Knowledge qualifiers: Limit warranties to actual knowledge of named individuals and agreed constructive knowledge standards at signing, as is common in Belgian practice.

These limitations are always negotiated. Their scope depends on deal context, leverage and disclosure quality. Sellers rarely get everything, but knowing these levers early helps you build a strong strategy and minimise post-closing risk.

Best practices for balancing buyer protection and seller certainty in liability clauses

Achieving a fair balance between buyer protection and seller certainty is crucial for a successful transaction. Here are best practices:

- Define clear limits: Set caps (maximum liability), baskets (minimum claim thresholds), and time limits for claims to avoid open-ended exposure.

- Materiality thresholds: Only allow claims above a certain value to be indemnifiable, preventing trivial disputes.

- Specific exclusions: Exclude indirect, consequential, or hypothetical losses, and clarify what is not covered.

- Tailored coverage periods: Standard warranties may last 12–24 months, but extend coverage for tax, environmental, or social risks as needed.

- Strict notice procedures: Specify how and when claims must be made, including required documentation and deadlines.

- Knowledge qualifiers: Limit warranties to facts known or reasonably discoverable by the seller at signing.

- Disclosure schedules: Attach detailed schedules to the agreement, listing known risks and exceptions to warranties.

- Integration with other mechanisms: Align liability clauses with price adjustments, earn-outs, and locked-box provisions for a coherent risk allocation.

- Warranty & indemnity insurance: Consider insurance to cover certain risks and provide additional certainty for both parties.

The Belgian reality

In Belgium, legal complexity and investor caution make these clauses even more critical. Governance thresholds, tax nuances and disclosure standards all influence negotiations. A well-structured SPA is not just legal paperwork, it is a strategic shield for your future.

Dups’ approach

At Dups, we do not just draft agreements, we negotiate them with a founder mindset. We challenge clauses that put your future at risk and integrate mechanisms that protect you when it matters most. Our boutique M&A team combines legal and financial expertise under one roof, sitting next to you from strategy to closing and delivering under pressure.

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