De Minimis Threshold

What is a de minimis threshold?

De minimis threshold (Bagatellgrenze) refers to the minimum amount, set in the company purchase agreement, that an individual claim of the buyer for a breach of warranty must reach for the seller to be liable for it. The terms de minimis clause and mini-basket are also in use. A breach of warranty exists if a contractual statement by the seller about the company is untrue. Claims below the minimum amount are excluded.

The de minimis threshold is the first level of the monetary limitations of liability. It is followed by the basket as a threshold for the sum of all claims and the liability cap as an upper limit. Its purpose is economic: reviewing, notifying and defending a claim causes costs for management, law firms and tax advisers that, for very small amounts, exceed the claim itself.

How the de minimis threshold works

The de minimis threshold acts on each claim individually. If a claim is below it, it lapses completely, and, in the usual drafting, it also does not count towards the calculation of the basket. If it reaches the threshold, it counts in full. It therefore works like a tipping threshold (Freigrenze). It is possible, but unusual, for it to work as a deductible (Freibetrag) in which only the part above the threshold counts.

The exact wording matters. The formulation “claims that do not exceed EUR 10,000 in the individual case” excludes a claim of exactly EUR 10,000, the formulation “claims below EUR 10,000” permits it. It also has to be fixed whether the threshold is tested before or after the offsetting of insurance payments and provisions.

Aggregation of similar claims

The most important point of negotiation is the question of when several small claims count as one claim. Without a rule, a systematic error that occurs in many individual cases can remain entirely below the de minimis threshold although the total loss is considerable. Buyers therefore demand an aggregation clause under which claims arising from the same or a similar set of facts count as one claim.

Sellers prefer a narrow wording that aggregates only claims from the same cause. For business models with many standardised contracts, such as subscription software, platforms or online retail, the wording decides considerable amounts. Typical cases are an invalid clause in general terms and conditions, a repeated billing error or the classification of several freelancers as employees.

Level of the threshold and exceptions

A fixed euro amount is usual. It is based on the size of the transaction and on how fragmented the business is. It is often a fraction of a percent of the purchase price and always far below the basket. A threshold that is too low misses its purpose, one that is too high excludes claims that are noticeable for the buyer.

Like the basket, the de minimis threshold generally applies only to claims under business-related warranties. Usually excluded are title warranties on the existence and ownership of the shares, tax and other indemnities, and claims for intent and fraudulent concealment, for which contractual limitations do not apply anyway. In transactions with warranty and indemnity insurance, the policy often also contains its own de minimis threshold, which should be aligned with that of the purchase agreement.

Significance in due diligence and negotiation

The level of the de minimis threshold is closely tied to the findings of due diligence, the buyer's review of the company before the contract is concluded. If the review shows many small irregularities, for example in contract administration or billing, the buyer presses for a lower threshold and a broad aggregation clause. A seller with orderly processes and cleanly documented standard contracts can justify a higher threshold more easily.

Worked example: de minimis threshold with and without aggregation

A software company with around 300 customer contracts is sold. The purchase agreement contains a de minimis threshold of EUR 10,000 per claim and a basket of EUR 100,000 as a tipping threshold. After closing, that is, the transfer of the shares, it turns out that a price adjustment clause used in the standard terms is invalid. 25 customers are entitled to repayment of EUR 1,800 each. In addition, there are two further warranty claims of EUR 30,000 and EUR 40,000.

• Without an aggregation clause: each of the 25 claims is below the de minimis threshold at EUR 1,800 and lapses.
• Remaining claims: 30,000 plus 40,000 = EUR 70,000, below the basket of EUR 100,000. The seller pays nothing.
• With an aggregation clause: 25 × EUR 1,800 = EUR 45,000 count as one claim and exceed the de minimis threshold.
• Sum for the basket: 45,000 plus 30,000 plus 40,000 = EUR 115,000, above the basket of EUR 100,000.
• Result with a tipping threshold: the seller pays EUR 115,000.

The same facts lead to a payment of zero or of EUR 115,000, depending on the aggregation clause. If the basket had been agreed as a deductible, the payment with aggregation would be 115,000 minus 100,000 = EUR 15,000.

Distinction: de minimis threshold, basket and de minimis aid

• Indemnity basket: threshold for the sum of all claims. The de minimis threshold acts before it and determines which claims enter the sum at all.
• Materiality qualifier: limits the content of a warranty to material circumstances. The de minimis threshold applies only to the amount of the individual claim.
• Purchase price adjustment: compensates deviations in balance sheet items, for example in the working capital adjustment, euro for euro and generally without a de minimis threshold. What is covered there is not additionally asserted as a warranty claim.
• De minimis aid: In EU state aid law, de minimis denotes small state aid that may be granted without approval by the Commission, since 2024 up to EUR 300,000 per undertaking within three years. Customs and tax law know similar de minimis thresholds. They have nothing to do with liability in a company purchase.

Common mistakes

• No aggregation rule. Systematic errors with many small individual losses stay below the threshold although the total loss is considerable.
• Aggregation too broad. If any “similar” set of facts suffices, unrelated small losses can be bundled, and the de minimis threshold loses its effect.
• Threshold unrelated to the business. An amount taken over from a model contract rarely fits a business with very many or very few individual contracts.
• Scope too wide. If the de minimis threshold also extends to tax or special indemnities, amounts drop out that the buyer deliberately secured from the first euro.

Frequently asked questions

What happens to claims below the de minimis threshold?

They lapse. The buyer can neither assert them individually nor, in the usual drafting, count them towards the basket. It is different only if an aggregation clause combines several similar claims into one claim.

How high is a de minimis threshold usually?

As a rule of thumb, a fraction of a percent of the purchase price; there is no fixed market figure. The size of the transaction and the number of similar individual contracts are decisive. The threshold is always far below the basket, because it is only meant to filter out very small claims.

Is the de minimis threshold a deductible or a tipping threshold?

For the individual claim it generally works as a tipping threshold: once it is reached, the claim counts in full. Whether the basket then works as a deductible or a tipping basket is to be regulated independently of this.

Does the de minimis threshold also apply to taxes?

Mostly not. Tax risks for periods before the contractual reference date on which the company passes economically are generally secured through a tax indemnity, to which neither de minimis threshold nor basket applies.

The Roemer Capital view

For companies with many standardised customer contracts, Roemer Capital examines the de minimis threshold together with the aggregation clause, because only both together show which small losses actually remain with the buyer. The basis is the findings of due diligence and an analysis of the contract portfolio, which Roemer Capital prepares with the management.

In the negotiation, Roemer Capital justifies the level of the threshold by the structure of the business rather than by percentages from model contracts. The wording, including that of the aggregation clause, is the responsibility of the client's law firm.