The buyer is proposing both a ten percent seller note and a ten percent indemnity escrow, but the purchase agreement draft allows them to offset indemnity claims directly against our note payments. How do we structure this to avoid double jeopardy?

Question

Tyler Smith · Accepted Answer

When a buyer links indemnity claims directly to your seller note, they are creating a mechanism to unilaterally stop paying you without going through a neutral arbitration process. This is double jeopardy. You have already set aside cash in an indemnity escrow to cover representations and warranties breaches. Allowing them to also offset payments on your seller note gives them too much leverage post-close.

To fix this, you must insist on a strict operational and legal separation between the escrow and the seller note. First, negotiate a clause that prevents any offset against the seller note until the indemnity escrow is entirely exhausted. Second, require that any claimed breach must be verified by an independent third party or formal arbitration before any withholding of note payments can occur. If they claim a breach, they cannot simply stop writing your check. They must place the disputed amount into an independent interest-bearing escrow account while the dispute is resolved.

During this transition, keep your leadership team focused on executing your quarterly Rocks. If your team is running on EOS®, use your weekly Level 10 Meeting™ to monitor transition milestones. This keeps your execution clean and prevents the buyer from fabricating operational pretexts to claim a breach. Do not let the buyer become both judge and jury over your hard-earned money. Keep the note and the escrow completely compartmentalized.