Retention

Glossary

In the context of an acquisition, the retention of part of the purchase price, either:

As security for the buyer in respect of potential breaches of warranty or indemnity. The retention arrangement is usually for a fixed period, which may mirror the warranty limitation period.
To secure the parties' payment (or repayment) obligations under a price adjustment mechanism.

Where a retention is agreed, the retained amount is often paid into an escrow account on completion of the transaction.

For further information, see Practice note, Structuring the purchase price: acquisitions: Retention arrangements (escrow).

In the context of an insurance policy, a retention is also known as an excess.

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