Who pays for the data room in a UK business sale?

The person who signs the order form is not always the person who ends up paying.

Why does the seller usually pay?

Because the room serves the seller’s process. A sell-side data room exists to let the seller, or its adviser, control what bidders see, when they see it and on what terms. The seller decides the folder structure, the permissions, the Q&A rules and the timetable. It would be odd for a bidder to pay for a tool that the other side runs, and in a competitive auction no bidder would agree to it.

There is also a practical reason. The seller, through its adviser, needs to be able to switch the room on before any buyer is identified, often weeks before the process letter goes out. Somebody has to pay from day one, and only the sell side is there on day one.

That broad rule hides several different arrangements, and the differences matter for tax, for the price and for who owns the contract when things go wrong.

Who signs the contract, and who bears the cost in the end?

The diagram below follows the money from the party that contracts with the provider to the party that, economically, carries the cost once the deal completes.

Here are the six arrangements we see most often on UK deals, with what each means in practice.

What happens when the target company pays?

This is the most common arrangement in an owner-managed sale, and the one most often overlooked when the price is negotiated.

If the target company signs the order form and pays the invoices, the cost leaves the business you are selling. How that lands depends on the price mechanism in the sale and purchase agreement.

Completion accounts. If the price is adjusted for cash, debt and working capital at completion, any data room invoices the company has paid reduce its cash. The sellers bear the cost through a lower price, which is usually the intended result. Unpaid invoices at completion may be treated as debt-like items, depending on the definitions.

Locked box. If the price is fixed by reference to a balance sheet at an earlier date, payments out of the company after that date are usually “leakage” and must be repaid by the sellers, unless the agreement lists them as permitted leakage. Transaction costs, including data room fees, are commonly negotiated one way or the other. If the agreement is silent and the definitions are loose, the buyer may effectively end up paying. Your solicitor should cover it, but it helps to raise it early.

Either way, keep the invoices in a separate cost line so that the finance team and both sets of advisers can see exactly what was paid and when.

Should the adviser pay and recharge, or absorb the cost?

Corporate finance boutiques handle this in two ways, and neither is wrong. What matters is that the engagement letter says which. Our guide to selling a UK business covers the wider adviser relationship.

Some advisers hold a licence that covers several rooms a year and treat the room as part of the service. The client sees no separate line, but the fee reflects it. This suits sellers who want a single, predictable cost, and suits advisers who run several mandates at once and want a consistent platform.

Others contract per mandate and recharge the cost as a disbursement. That keeps the fee lower on smaller deals but adds a variable cost the seller does not control. If you are the seller, ask whether the recharge is at cost or with a handling margin, whether VAT will be added, and what happens if the process overruns by a few months.

A useful clause in the engagement letter reads something like this:

The Company will reimburse the Adviser for the cost of the virtual data room at cost, plus VAT where applicable. The Adviser will provide copies of the provider’s invoices on request. Unless agreed otherwise in writing, the room will be closed and archived within 30 days of completion or termination of the engagement, and an archive copy delivered to the Company.

That wording is illustrative, not legal advice; your adviser’s standard terms will differ. But it covers the four things that cause friction later: the basis of the recharge, VAT, evidence of cost, and the archive.

When does the buyer pay?

Less often than people expect, but it does happen.

A buy-side room is a workspace the buyer sets up for its own advisers: lawyers, accountants, financial due diligence providers, sometimes a lender. It holds the buyer’s reports and internal analysis, not the seller’s documents. The buyer pays, and the seller never sees it.

A buyer-funded confirmatory room sometimes appears on smaller sales where the seller never set up a room at all. Once heads of terms are signed, the buyer’s solicitor opens a room, asks the seller to upload documents and pays for it as part of its diligence costs. The catch is control: the room belongs to the buyer, so the seller loses the audit trail and the ability to decide who sees what. If the deal falls through, the seller has handed its documents to a room it does not own. Sellers in that position should ask for access rights and a deletion commitment in writing.

On bank-led financings, the lender or arranger sometimes provides the platform, and the borrower pays through the arrangement fee. You may not see a separate charge at all.

Who pays in an administration sale?

When a business is sold out of administration, the administrator runs the sale and the data room is an expense of the administration. Those expenses are paid from the company’s assets before most creditors receive anything, so in practice the creditors bear the cost. The Insolvency Service publishes guidance on how administration works and what administrators do. Speed usually matters more than cost here; our administration and insolvency page covers what a pre-pack room needs.

How does VAT affect the choice of payer?

More than most sellers think. Data room fees carry VAT in most cases, and whether that VAT is recoverable depends on who receives the supply and what they use it for.

A VAT-registered trading company buying a room for its own business purposes is in a different position from individual shareholders selling their shares, who usually are not VAT registered at all. Recovery of VAT on deal costs, especially on share sales, is not automatic, and HMRC’s rules turn on the facts. GOV.UK’s guidance on reclaiming VAT is the starting point; your accountant should confirm the position before you decide which entity signs.

If the provider bills from outside the UK, a VAT-registered business customer usually accounts for the VAT itself under the reverse charge rather than paying it on the invoice. Prices in US dollars add exchange rate movement on top.

What does it actually cost?

The amount is usually modest beside adviser and legal fees, which is why disputes over it tend to be about principle rather than money.

Most established providers quote per project. Some publish prices; among the specialist rooms, Ellty lists an entry price of $149/mo (approx. £112, indicative, confirm with the provider; may exclude VAT), SecureDocs from $250/mo (approx. £188) and CapLinked from $299/mo (approx. £224), on the same indicative basis. Quote-based rooms from iDeals, Datasite or Intralinks can cost considerably more on large processes, and you will only know with a written quote. Our UK data room cost guide explains what drives each pricing model, and our costs page compares them side by side.

How do you agree who pays before the room opens?

1. Decide which entity contracts

   Choose between the target company, the sellers, the adviser or, rarely, the buyer. Take VAT advice first if the amounts are material.

2. Put it in the engagement letter

   If the adviser contracts, state whether the room is absorbed in the fee or recharged, at cost or with a margin, and with or without VAT.

3. Get a written quote for the whole timetable

   Ask for the cost of the expected duration plus one or two months' overrun, in pounds where possible, and the price of the final archive.

4. Flag it to your solicitor for the SPA

   If the target company pays, make sure the leakage or completion accounts definitions deal with transaction costs the way you intend.

5. Track the invoices separately

   Keep data room costs in their own line so they can be evidenced in completion accounts or a leakage schedule.

6. Agree the archive and close-down

   Decide who receives the archive, who pays for any read-only extension after completion, and when the room is deleted.