What is a Set-Off Clause in a Contract? Definition, Purpose, and Examples

A set-off clause is a common provision found in many contracts, particularly in business agreements. It allows one party to reduce or eliminate their obligations under the contract by setting off a claim or debt they have against the other party. In this article, we will explore the definition, purpose, and examples of a set-off clause in a contract.

A set-off clause is a contractual provision that allows one party to reduce or eliminate their obligations under the contract by setting off a claim or debt they have against the other party. This means that if Party A owes Party B $10,000 under the contract, but Party B owes Party A $5,000, Party A can set off the $5,000 debt against the $10,000 obligation, leaving only $5,000 outstanding.

The purpose of a set-off clause is to provide a mechanism for parties to resolve disputes and settle debts without having to go to court. By allowing parties to set off claims and debts against each other, a set-off clause can help to reduce the risk of disputes and ensure that contracts are enforced in a fair and equitable manner.

Examples of set-off clauses can be found in many types of contracts, including:

• Business contracts, such as supply agreements, distribution agreements, and licensing agreements
• Financial contracts, such as loans, mortgages, and credit agreements
• Real estate contracts, such as purchase agreements and lease agreements

In summary, a set-off clause is a contractual provision that allows one party to reduce or eliminate their obligations under the contract by setting off a claim or debt they have against the other party. It is a common provision found in many contracts and can help to resolve disputes and settle debts in a fair and equitable manner.