Indemnification — cap, basket, clock.

Indemnification turns a breach into money, and three quantitative controls set the boundaries. The cap is the ceiling on recovery; the basket is the floor a claim must clear; and survival is how long the right to claim lasts. For sub-$5M agency deals the general-rep cap runs 10–15% of purchase price — below 10% is a seller win to accept only with offsetting protections, above 15% is territory where the seller demands a price cut or representations insurance. Fundamental reps — authority, title, taxes, broker fees, no undisclosed ownership — sit at a 100% cap, carved out from the general number and non-negotiable for buyers.

§ 01 · The basketTipping beats deductible.

The basket has two flavors with dramatically different recovery. A deductible basket means the seller pays only the excess over the threshold (seller-favorable). A tipping basket means that once the threshold is crossed, the seller pays dollar-for-dollar from the first dollar (buyer-favorable). On a $600K breach with a $50K threshold, that's the difference between $550K and $600K of recovery. The basket sizes at 0.5–1% of price to eliminate small administrative-cost-only claims, with a per-claim de minimis around $5K filtering noise below it. Push survival to 18 months minimum on agency deals — 12 months can expire before carrier contingency reconciliations even complete.

§ 02 · The four carve-outsWhat escapes the cap.

Four categories sit outside the general cap and basket. Fundamental reps — capped at 100%, no general basket. Fraud — no cap, no basket, no survival limit, and never let the seller draft an exception to it. Specific indemnities for known diligence issues — dedicated provisions outside the general cap, so a problem surfaced in diligence gets its own recovery channel rather than competing for the general bucket. And covenant breaches — forward-looking promises that sit outside the general cap by their nature. The discipline is to keep the general cap for general reps and route everything that deserves more protection into its own carve-out.

§ 03 · The materiality scrape and three drafting winsThe leverage clauses.

Three more drafting moves are ones buyers actually win. Reject anti-sandbagging outright — the buyer paid for the reps and the seller stands behind them regardless of diligence knowledge. Confirm the tax gross-up so indemnity payments are treated as purchase-price adjustments, not taxable income (the default, but some state-law and IRS positions create exposure). And don't allow a blanket consequential-damages exclusion — for a book deal the damage model is a multiple of lost commission, so narrow the exclusion to punitive and speculative damages while preserving recovery for direct lost book value and profit impact.

§ 04 · The recovery stackFive sources, usually layered.

Recovery sources stack, and a complete package uses several. The holdback (10–15% of price) is buyer self-help and the preferred source. Escrow (neutral third party, mutual consent or dispute resolution) is the seller-preferred alternative. Offset against a seller note is strongly buyer-favorable. Offset against earnout payments adds another layer. And direct recovery from the seller is the catch-all that requires litigation or arbitration and is rarely relied on sub-$5M, because collection risk is real. The platform-standard package ties the whole structure together: a 12.5% cap, a 0.75% tipping basket, 21-month survival, and fundamental reps at 100% — a market-aligned baseline that holds the line without tipping into the territory where the seller walks or demands a price cut.

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