What is a set-off agreement and when to use it

A set-off agreement allows two parties to cancel out mutual claims of the same kind (e.g. debts) without actual payments.
Both obligations disappear up to the amount they match.

Common use cases:

• two companies exchanging invoices

• offsetting debt and credit between private persons

• legal settlement of ongoing obligations

• reducing liabilities without transferring money

Legal framework

Regulated by Sections 1982–1991 of the Czech Civil Code.
Both claims must be:

• valid and enforceable,

• mutual and of the same kind.

Key elements of a set-off agreement

• Parties to the contract

• Identification of both claims

• Amount to be set off

• Effective date of set-off

• Signatures and date

• Optional: declaration that remaining claims are settled

Common mistakes

• Ambiguous or invalid claims

• Attempting to set off unassignable or protected claims (e.g. alimony)

• No written confirmation from both sides

• Unclear legal basis or due date of claims

Recommendations

• Attach proof of both claims (invoices, contracts)

• Be clear about which claims are affected

• Use a short, simple written agreement to avoid future confusion

Practice tip

A set-off agreement can clean up accounting, reduce litigation, and help finalize business or personal exits without legal battles.

Set-off contract template – available for a symbolic fee

I offer a simple Czech-English set-off agreement template for mutual debt cancellation.

Ideal for businesses or individuals. Custom versions available on request.

Contact me via e-mail or form for quick assistance.

FINAL THOUGHTS – WHAT NOW?

A set-off agreement isn’t just a formality – it’s a legal shield, if drafted properly. And a trap, if not.

Do you want to be sure your contract will hold up even in a crisis? Get in touch and let’s schedule a meeting. I am a specialist on contract law – more information here.