Set-off Clauses

Summary

This template contains set-off clauses that may be used in a commercial contract as a self-help remedy to an obligor, allowing deduction or withholding of amounts owed to it from a party to which it owes payment. This template includes practical guidance and drafting notes. A set-off clause allows a party to a commercial agreement to reduce the amount of its payment obligations due to the other party by amounts that are due from the other party. Parties are generally free to limit or expand setoff rights as they deem fit. Many parties are, with good cause, reluctant to agree to a set-off provision. Set-off usually favors a buyer or customer and is typically avoided by sellers or service providers. If they have sufficient leverage, parties that will be receiving all or most of the payments under an agreement will include language expressly prohibiting the other party from exercising the right of setoff. For a full listing of related contract clauses, see General Commercial Contract Clause Resource Kit. For more information on set-off clauses, see Setoff, Recoupment, and Counterclaims in Commercial Contracts.