What is sandbagging?
Sandbagging, in a deal context, is a buyer bringing an indemnity claim for a breach of a representation it already knew about before closing. The buyer discovers in diligence that a seller's rep is not quite true, says nothing, closes the deal anyway, and then claims against the seller for the breach afterward.
Whether a buyer is allowed to do this turns on a specific provision in the purchase agreement — the sandbagging clause. A pro-sandbagging clause preserves the buyer's right to claim regardless of what it knew; an anti-sandbagging clause bars claims for matters the buyer was aware of before close. Many agreements stay silent, leaving the question to the governing law.
The term carries a faint whiff of bad faith, but in practice the right to sandbag is a legitimate point of negotiation. It is really a question of who bears the risk of a known defect: the seller who made the rep, or the buyer who proceeded knowing it was off.
How sandbagging is handled in the agreement
The outcome depends entirely on which clause the parties negotiate.
- Pro-sandbagging. The buyer's right to claim survives regardless of its pre-close knowledge — the seller stands behind every rep as written. This favors the buyer.
- Anti-sandbagging. The buyer cannot claim for a breach it knew about before close — knowledge of a problem waives the right to be indemnified for it. This favors the seller.
- Silent. The agreement says nothing, and whether sandbagging is permitted falls to the governing law, which varies by jurisdiction and can be uncertain.
Because the clause allocates the risk of known defects, it is negotiated alongside the reps, the disclosure schedule, and the indemnity package as one connected set of protections.