Glossary
Retention
A part of the purchase price that the buyer keeps back at completion for an agreed period, to be paid to the seller later if it is not needed to meet claims or price adjustments. Also called a holdback.
In plain English
A retention does the same job as escrow, but the money stays with the buyer instead of an independent third party. Sellers tend to prefer escrow, because it puts the funds beyond the buyer's reach; buyers tend to prefer a retention for the opposite reason.
Retentions are commonly used alongside warranties and indemnities, and sometimes to back a working capital adjustment.
Why it matters
A retention reduces the cash received on completion and relies on the buyer paying it later, so the amount, the period, the triggers for withholding and the buyer's covenant all matter.
What to watch for
- Negotiate the amount and the release date.
- Consider escrow as an alternative if the buyer's financial strength is uncertain.
- Define the claims process clearly.
Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.