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An exclusivity agreement, or exclusivity clause, gives one party the sole right to negotiate or proceed with a transaction for a defined period. The main purpose is generally to buy time, to allow negotiations or due diligence to take place without the other party seeking or accepting competing offers.However, exclusivity can also cover other terms, such as a set price, territory, or scope.
Exclusivity is a fairly common issue in property deals (often called lock-out agreements), mergers and acquisitions, agency, and distribution arrangements. Excusivity terms can be set out in a standalone agreement or included as a clause in a wider contract such as heads of terms or a letter of intent.
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
Define scope of exclusivity - precisely define products, services, or territories covered, specify whether exclusivity is absolute or qualified and what activities are prohibited.
Duration - specify the length of the exclusivity period, any option to extend or renew and any "step-down" provisions to gradually reduce exclusivity.
Termination - circumstances allowing early termination, notice periods for termination, consequences of termination and any post-termination obligations.
Performance - minimum performance thresholds to maintain exclusivity, consequences for failing to meet requirements, measurement metrics and reporting obligations.
Monitoring - reporting, marketing, training, or service levels.
Intellectual property rights – licences, trademarks, branding, proprietary material,trade secrets and know-how.
Non-compete/non-solicitation – prevent dealings with competitors or customer poaching.
Assignment/subcontracting – control transfer of rights or obligations.
Non-Circumvention - prevents parties from bypassing the agreement through affiliates.
In high-value property sales and leases, exclusivity or lock-out agreements are common, especially if the curretnt market conditions favour the seller or landlord
In a fast rising or demand driven, damages may nit deter breach, so clauses which on the face of it give the right to obtain an injunction or specific performance may also be part of the negotiation. Other key considerations include clearly defined timescales, deposit arrangements (often 1-2% of purchase price) or trigger events that end exclusivity.
Enforcing exclusivity agreements can present challenges, particularly when proving financial loss. Courts typically require clear evidence of actual financial loss.
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.
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.
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