When the basket is reached, does the buyer recover the full loss or only the excess?

A basket is the threshold that a buyer’s qualifying losses must pass before the seller owes anything on a warranty claim. The word covers two different payment rules, and buyers often assume they have the friendlier one. Under one, passing the threshold unlocks the whole loss. Under the other, the threshold is subtracted from every claim for good.

Tipping basket or true deductible

In a tipping basket, the buyer recovers its full qualifying losses, from the first dollar, once the total passes the threshold. In a true deductible, the buyer recovers only the amount by which its losses exceed the threshold, which is the version that favours the seller. Picture losses that land just above the threshold. A tipping basket pays nearly all of them. A deductible pays almost none.

What counts toward the basket

Agreements typically also set a per-item minimum, called a de minimis, below which a loss does not accumulate toward the basket at all. A buyer who finds a dozen small problems can discover that none of them was counted. Our entry on baskets and de minimis sets the two side by side.

Claims that skip the basket

Some claims are commonly carved out so the buyer can pursue them from the first dollar, whatever the threshold: fraud or intentional misrepresentation, and breaches of fundamental representations such as authority to sell and title to the shares or assets. Quebec adds a floor of its own. Article 1474 of the Civil Code says a person may not exclude or limit liability for material injury caused by intentional or gross fault.

There is no standard number

In Ontario no rule fixes the size of a basket. It is negotiated for the deal, and it moves together with the cap on total liability and the survival period, which are rarely negotiated in isolation. BDC’s guidance has a lawyer negotiate the purchase agreement, so ask that lawyer to run an example through your clause. Our page on what happens if a warranty proves wrong after closing shows where the basket fits in a claim.