The buyer is demanding a right of offset against our seller note for any representation and warranty breaches, which feels like an open invitation to claw back the purchase price. How do we structure the offset terms and dispute resolution process to protect our note?

Question

Tyler Smith · Accepted Answer

A broad right of offset essentially allows a buyer to act as judge, jury, and executioner, withholding your seller note payments whenever they claim a minor operational or financial discrepancy. You must never agree to an unrestricted right of offset. To secure your payments, negotiate a structured dispute resolution protocol directly into the promissory note. First, require the buyer to place any disputed funds into an independent, third-party escrow account rather than simply pocketing the cash. This keeps them honest, as they do not get to keep the money while the dispute is pending. Second, insist on a basket and cap structure. This means the buyer cannot claim an offset until their cumulative damages exceed a specific basket amount, and their total offset capability is capped at a small fraction of the note value. Third, require that any disputes be resolved through an expedited arbitration process within thirty days, rather than letting them drag it out in court to exhaust your resources. Finally, ensure that any undisputed portion of the note payment must continue to be paid on schedule. By ring-fencing disputes and keeping the funds out of the buyer's hands, you eliminate their incentive to fabricate breaches just to lower their purchase price.