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Exclusivity agreement templates
In this section we have exclusivity agreement templates for a sale of shares in a company. A buyer may require a period of exclusivity to carry out its due diligence and to negotiate the transaction without the risk of the seller doing a deal with another buyer.
We also have exclusivity agreements for the sale of a business and for use in an investment transaction.
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Why use Exclusivity Agreements?
Alongside an NDA to protect confidential information, an exclusivity agreement is a preliminary agreement entered into at the commencement of negotiations for a transaction, usually the sale or a company, business or commercial property or a proposed investment in a company.
The purpose of an exclusivity agreement is to allow the buyer or investor a period of time (the exclusivity period) during which the seller or investee company agrees not to enter into or negotiate with a third party the same type of transaction as the proposed transaction. This allows the buyer or investor to incur costs in carrying out its due diligence and in preparing and negotiating the purchase agreements in the knowledge that the seller or company is prohibited from engaging in similar discussions with another rival bidder.
Whether the seller or investee company will agree to enter into an exclusivity agreement is a matter for commercial negotiation, often determined by whichever party is in a better negotiating position.
How long should the exclusivity period last?
An exclusivity period usually lasts for at least 4 weeks and possibly up to 2-3 months. A longer period than that would be unusual. A shorter period than 2 weeks may be agreed in situations where either the buyer has been selected as a preferred bidder following an auction or other kind of competitive process or in the event that the target company is in financial difficulty.
What is the remedy for breach of an exclusivity agreement?
The likely remedy for breach of an exclusivity agreement is an action in damages to recover the costs incurred in due diligence and contract preparation and negotiations.
The parties involved may also agree that the party which is granting the exclusivity will, in the event of a breach of the exclusivity obligations, indemnify the other party for its wasted costs, potentially up to a specified maximum amount.
