I sold my manufacturing business about 8 months ago. The purchase agreement had the usual reps and warranties. Now the buyer is claiming a warranty breach over some equipment maintenance records and demanding I cover repair costs. My attorney says it's within the escrow holdback amount, but I'm worried about what comes next. For those who've been through this, what did you actually do to limit your post-closing exposure? I'm not looking for legal advice, just practical stuff you wish you'd done differently.
seller liabilities
Practical guide to post-closing seller liabilities
The escrow holdback is usually the first place they go. Did you have a separate indemnity cap or was it just the holdback? Those are different things and a lot of sellers don't realize it until a claim shows up.
Documentation is everything. If your maintenance records were incomplete before closing, that's on you. Buyers will dig through everything once they own it.
I had a similar situation with a service business. What saved me was that the purchase agreement had a materiality scrape and a defined claims period. The buyer tried to bring up something from two years before closing. My lawyer pointed to the survival period and it went away.
Honestly the best thing I did was hire an independent accountant to do a quality of earnings review before listing. It forced me to clean up the books and also gave me a paper trail if anyone questioned the numbers later.
What does your purchase agreement say about who pays for the buyer's attorney fees if they win a claim? That can escalate fast.
I'm in the middle of selling my landscaping company and this thread is making me nervous. My broker keeps saying not to worry but I feel like I need to read every line of the APA myself.
Read it. And get your own attorney, not the one your broker recommends. Not saying brokers are shady, but their incentive is to close the deal, not protect you after closing.
The escrow is there for a reason. If the claim is under the holdback, just let it go. Fighting it will cost more in legal fees than the claidm itself.
Thats not always true. If you pay the first claim without pushing back, the buyer might come back with more. Sometimes you have to establish that you'll defend yourself.
One thing I wish I'd done: a post-closing transition period with a clear scope. I stayed on for 90 days as a consultant and the buyer treated it like I was still responsible for everything. Next time I'd define exactly what I was and wasn't there to do
My agreement has a $75k holdback but the indemnity cap is $200k. The cl aim is for $18k. I'm leaning toward just paying it From escrow but something about it doesn't sit right. The equipment records were incomplete because the previous owner of that machine never gave us the full set. I inherited the problem.
Did you disclose that in the reps? If you specifically said the records were incomplete for that machine, you might have a defense. If you just said 'maintenance records are available' without qualification, you're probably stuck.