A limitation agreement is a legal document that outlines the terms and conditions of a business transaction or contract. This document sets out the limitations of liability on the part of one or both parties involved in the transaction. The limitation agreement is typically used in situations where there is a high degree of risk involved with a business deal, and the parties want to limit their potential exposure to losses.

In essence, a limitation agreement sets a cap on the amount of money that one party can be held responsible for if something goes wrong. Typically, this cap is established as a fixed sum, and it is based on the nature and extent of the risks associated with the transaction. For example, in a real estate transaction, the limitation agreement might state that the buyer is only responsible for a fixed amount of money if there is any damage to the property during the sale process.

The limitation agreement also typically sets out the circumstances under which liability will be triggered. For example, it might state that the buyer is only liable if the damage is caused by their negligence or intentional misconduct. Similarly, the agreement might specify that the seller is only liable if they fail to disclose certain facts about the property that would materially affect its value.

One important thing to note about a limitation agreement is that it typically only applies to the parties involved in the transaction. This means that if a third party is harmed as a result of the transaction, they may still be able to sue one or both of the parties for damages. However, the limitation agreement can be a useful tool for limiting exposure to losses in the event that something goes wrong.

Overall, a limitation agreement is an important legal document that can help protect businesses from potential losses associated with risky transactions. Whether you are a buyer, seller, or other type of party involved in a high-stakes transaction, it is important to carefully consider the terms and conditions of any limitation agreement before signing on the dotted line. By doing so, you can help ensure that you are protected from potential damages and financial losses down the road.