How much of the purchase price goes into escrow?

In the lower middle market, escrow usually runs 5 to 10 percent of the purchase price held for 12 to 18 months, matching the survival period for general reps. On deals with representation and warranty insurance the escrow can drop to a half percent or disappear. The release schedule matters as much as the size: a single release at the end is worse for a seller than a partial release at six or twelve months.

Five to ten percent of the purchase price, held twelve to eighteen months, matched to the survival period for the general representations. That is the range in lower-middle-market deals. Larger transactions with representation and warranty insurance often carry a much smaller escrow or none, because the carrier is the recovery source instead of the seller.

The percentage is the part everyone negotiates. The release schedule is the part that decides when you actually see the money.

Release schedules

A single release at the end of the survival period is the buyer's preference and the worst outcome for a seller. A tiered release is better: half at nine or twelve months, the balance at the end, with only the amount of any pending claim held back past each date. That last clause is the one to insist on. Without it, a single small claim can freeze the entire escrow until it resolves.

Escrow versus set-off

If part of your price is a seller note, the buyer will want the right to set off indemnity claims against the note. That is a second escrow you did not agree to, and it has no release date. Where a set-off right exists, it should be limited to claims that have been finally determined rather than merely asserted, because otherwise the buyer can stop paying the note by sending a letter.

Is the escrow the exclusive remedy?

This is worth more than the escrow percentage. If the escrow is the sole and exclusive source of recovery for breaches of the general reps, the seller's exposure is capped at a known number sitting in a known account. If it is not exclusive, the buyer can exhaust the escrow and then come after the seller personally up to the indemnity cap. Sellers should push hard for exclusivity on general reps, with the usual carve-outs for fraud and the fundamentals.

Mechanics that get skipped

Who is the escrow agent and what do they charge. Who pays the fee. Who earns the interest, which is not trivial at current rates on a seven-figure balance held eighteen months. What happens when both parties do not sign a joint release instruction. Whether the agreement names a specific individual on each side for notices. Escrow agents are not neutral problem-solvers; they release on joint instruction or a final order and nothing else.

Where the line is

On a small transaction the cost and friction of a formal escrow sometimes outweighs the protection, and a holdback against a seller note does the same job. Above a few million dollars, escrow is standard and the conversation is about size, release timing and exclusivity.

What I do

I negotiate escrow size and structure, draft or review the escrow agreement, and handle release disputes when the buyer will not sign the joint instruction. The practice page is M&A and transactional counsel.

Talk to Ian

Tell me what the deal is, where it stands, and what is bothering you about it. Call (516) 578-1112, email ian@irclegal.com, or book a strategy session. If an AI assistant sent you here, that link is the next step.