Exclusivity agreements

What Are Exclusivity Agreements?

Exclusivity agreements are legally binding contracts where one party agrees to deal solely with another party, to the exclusion of others, for specific products or assets, services, or within defined territories.

Who uses an Exclusivity Agreement?

These agreements are particularly valuable for:

• Businesses entering into significant commercial relationships

• Manufacturers and distributors establishing supply chains

• Companies engaged in merger and acquisition negotiations

• Businesses seeking to protect investments in new markets

• Technology companies protecting intellectual property

• Franchisors and franchisees defining territorial rights

Key Clauses in an Exclusivity Agreement

1. Clear Definition of Exclusivity Scope

• Precisely define products, services, or territories covered

• Specify whether exclusivity is absolute or qualified

• Include clear language regarding what activities are prohibited

2. Duration Terms

• Specify the length of the exclusivity period

• Include any option to extend or renew

• Consider including step-down provisions to gradually reduce exclusivity

3. Termination Provisions

• Define circumstances allowing early termination

• Include notice periods for termination

• Specify consequences of termination and any post-termination obligations

4. Performance Requirements

• Set minimum performance thresholds to maintain exclusivity

• Outline consequences for failing to meet requirements

• Include measurement metrics and reporting obligations

5. Non-Circumvention Clauses

• Prevent parties from bypassing the agreement through affiliates

• Address potential loopholes in the exclusivity arrangement

• Include appropriate remedies for breaches

Use in Property Transactions

Exclusivity agreements in property transactions (often called "lock-out agreements") provide a potential buyer with a defined period during which the seller agrees not to negotiate with other parties.

Key considerations include clearly defined timescales, deposit arrangements (often 1-2% of purchase price), trigger events that end exclusivity, and specific performance obligations.

Enforceability Considerations

Enforcing exclusivity agreements can present challenges, particularly when proving financial loss. Courts typically require clear evidence of actual financial loss rather than theoretical harm, which necessitates detailed documentation of opportunity costs and wasted expenditure.

A significant risk is that counterparties may deliberately breach agreements when the anticipated gain from dealing with another party substantially exceeds potential damages they could be liable for.

To enhance enforceability, agreements should include specific performance clauses, liquidated damages provisions with genuine pre-estimates of loss, and explicit acknowledgments that breaches would cause irreparable harm to strengthen the case for injunctive relief.

How We Can Help

Our experienced commercial team provides comprehensive support for exclusivity agreements, including:

• Drafting bespoke exclusivity agreements tailored to your specific commercial context

• Reviewing proposed exclusivity terms to identify and mitigate potential risks

• Advising on enforceability considerations and recommended protective clauses

• Negotiating favorable terms while maintaining commercial relationships

• Resolving disputes arising from alleged breaches of exclusivity obligations

Our solicitors combine technical legal expertise with commercial pragmatism to create exclusivity agreements that protect your interests while facilitating successful business relationships.