The buyer is demanding we carry a seller note for twenty percent of the transaction, but they are also asking for broad offset rights that let them deduct alleged indemnification claims directly from our interest payments. How do we structure the offset clauses to prevent the buyer from using minor operational hiccups as an excuse to stop paying us?

Question

Tyler Smith · Accepted Answer

Buyers love to ask for a right of offset in a promissory note, which allows them to deduct the cost of any indemnity claims or operational surprises from the payments they owe you. While this sounds reasonable to a buyer, it creates a massive risk for the seller. If a minor customer dispute arises post-close, the buyer can unilaterally decide to stop making payments, forcing you to sue them to get your money back. This flips the leverage completely in their favor. To protect your principal, you must negotiate strict limitations on these offset rights. First, demand that the buyer cannot withhold any payments unilaterally. Any disputed amount must be placed into a neutral third-party escrow account while the claim is being resolved, rather than being pocketed by the buyer. Second, establish a high basket or deductible for indemnity claims. This means the buyer cannot claim an offset until their total accumulated damages exceed a specific material threshold, such as one percent of the purchase price. Third, require that any offset claim must be accompanied by an independent third-party audit or legal opinion proving that a breach actually occurred. In our EOS framework, we look at this as defining clear accountability and rules of engagement. You must ensure the promissory note clearly states that any unauthorized withholding of payments constitutes an immediate default, which accelerates the entire remaining balance of the note and triggers high default interest rates. This keeps the buyer honest and preserves your cash flow.