The buyer wants a right of offset in the seller note, allowing them to unilaterally withhold payments if they claim we breached a representation. How do we negotiate these offset terms to prevent them from using minor issues to avoid paying our note?

Question

Tyler Smith · Accepted Answer

A buyer will almost always ask for a right of set-off in the seller note. This allows them to subtract any claims they have against you, such as alleged breaches of representations and warranties, directly from the payments they owe you. The danger is that a buyer can unilaterally stop making payments over a disputed claim, forcing you to sue them to get your money back while they hold all the cards.

You should never agree to an unlimited, unilateral right of offset. Instead, negotiate specific guardrails to protect your cash flow. First, require that any disputed claim must exceed a high dollar threshold before any payments can be withheld. Second, mandate that any withheld funds must be placed in a neutral, third-party escrow account rather than kept in the buyer's operating bank account. This prevents them from using the offset as an easy cash-preservation tool.

Finally, state that the buyer cannot withhold payments unless a neutral arbitrator or a court confirms the validity of their claim. Ensure your leadership team reviews these provisions with your legal counsel during your transactional Rocks. By keeping these operational controls tight, you ensure the seller note remains a reliable source of yield rather than a leverage point for the buyer to claw back the purchase price.