Definition. A threshold below which the buyer cannot seek indemnification from the seller. Typically expressed as a percentage of purchase price, commonly 0.5% to 1.0% in lower-middle-market deals. Two structures exist: a 'deductible' basket (claims below the threshold are not recoverable at all) and a 'tipping' basket (once the threshold is exceeded, all claims become recoverable from dollar one).
The basket structure interacts with the materiality scrape and the indemnification cap. A 1% deductible basket with no scrape is a different exposure profile from a 0.5% tipping basket with a full scrape; sellers should evaluate the full structure, not any single term.
The basket prevents small disputes from triggering indemnification claims, which is in both parties’ interest. The level should be set high enough that the buyer is incentivized to absorb minor post-close issues rather than treat every variance as an indemnification matter.