Sandbagging Clauses in Contracts Explained

What Is a Sandbagging Clause?

A sandbagging clause (also called a pro-sandbagging provision) allows a buyer to pursue indemnification claims even if the buyer knew about the problem before closing. In other words, a buyer who discovers a breach of the seller's representations during due diligence can still close the deal and later seek compensation for that breach.

The term "sandbagging" comes from the idea of concealing one's strength — the buyer has knowledge but holds back from raising it until after the deal closes.

Why Sandbagging Clauses Matter

Without an explicit sandbagging or anti-sandbagging clause, the default rule varies by jurisdiction:

• Some states (like Delaware) tend to allow sandbagging absent a contractual prohibition
• Other states (like New York) have less settled law, making the outcome uncertain
• California courts have shown mixed approaches depending on the specific circumstances

This jurisdictional uncertainty makes it important to address sandbagging explicitly in the contract.

Buyer vs. Seller Perspectives

Buyers favor sandbagging clauses because:

• They preserve the right to rely on representations regardless of what due diligence reveals
• They prevent arguments about what the buyer "should have known"
• They maintain the seller's accountability for the accuracy of their representations

Sellers oppose sandbagging clauses because:

• They allow buyers to knowingly close on a problem and then seek a price reduction through claims
• They can feel like a trap, especially if the buyer never raised the issue before closing
• They remove the incentive for buyers to negotiate price adjustments pre-closing

When to Consult a Lawyer

Whether you are buying or selling, consider discussing sandbagging with deal counsel early in negotiations. The clause (or its absence) can significantly affect your rights and should align with your overall deal strategy.

This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.