The buyer wants to use our seller note as a direct offset mechanism for any indemnity claims they raise after closing instead of putting money into a third-party escrow account. How do we structure the note to prevent them from unilaterally withholding our payments over minor or unverified disputes?

Question

Tyler Smith · Accepted Answer

Buyers love offset provisions because they can unilaterally stop paying your seller note whenever they claim you breached a representation or warranty. This essentially turns your seller note into an interest-free, self-policed escrow account. To prevent this operational and financial disaster, you must fight to eliminate unilateral offset rights entirely.

If the buyer insists on some form of offset, you must strictly limit their ability to withhold cash. First, require that the buyer can only offset payments for final, non-appealable claims that have been determined by a neutral third-party arbitrator or court. Second, negotiate a basket and cap structure specifically for these offsets. They should not be allowed to hold back a single dollar until total claimed damages exceed a specific basket amount, and the maximum offset must be capped at a small fraction of the note value.

Third, require the buyer to pay any disputed amounts into an independent escrow account rather than keeping the cash in their own bank account while the dispute is sorted out. If they have to actually part with the cash, they will think twice before raising frivolous claims. Keep your leadership team focused on their Rocks during transition so your operational handoff is flawless, leaving the buyer with zero legitimate grounds to dispute the transaction terms.