Anonymised, illustrative composite. The terminable-on-notice file in this hub is about a clause that is too short. This is about the absence of any clause, which produces the opposite exposure.
At a glance
The target manufactures specialty food products in Nova Scotia and sells across Atlantic Canada almost entirely through a single distributor, a relationship that has run continuously since the target's founder and the distributor's owner shook hands on it eighteen years ago. The distributor accounted for $1.98 million of the target's $6.4 million in annual revenue, 31%. Diligence requested the distribution agreement as a standard document request; there was none. Every material term of the arrangement — pricing, territory, exclusivity, order minimums, how much notice either side would give before walking away — existed only as the way the two businesses had always dealt with each other, never written down.
An indefinite relationship with nothing in writing does not mean no obligations exist; it means the obligations are implied rather than stated, and implied terms cut both ways. The buyer could not point to a written exclusivity clause locking the distributor in, could not point to a minimum-purchase commitment, and could not simply terminate the relationship on short notice if it wanted to bring Atlantic Canada in-house or switch distributors after closing, because Canadian courts imply a reasonable-notice period into an indefinite-term commercial relationship of this kind, and eighteen years of dealing is exactly the fact pattern that produces a long implied notice period, not a short one.
The 31% of revenue running through this one relationship, $1.98 million, was the largest single concentration in the target's customer and channel base. There was no invoice, purchase order or correspondence anywhere in the data room that fixed a term, a minimum volume or a notice period for either side — eighteen years of transaction history existed, and zero pages of agreement. The buyer's counsel could not quantify an exact implied notice period without litigating it, but flagged a realistic range of six to eighteen months based on the length and depth of the relationship, which is the range Canadian courts have applied to comparably long, comparably significant unwritten commercial relationships.
No statute governs this. The obligation is a common-law implied term: where two parties deal with each other on an indefinite basis with no fixed term and no agreed notice provision, Canadian courts will imply a reasonable-notice period before either side can walk away without liability, by analogy to the same reasonable-notice principle that governs indefinite-term employment, applied instead to a commercial dealer or distributor relationship. The length of the implied notice period is not fixed by any formula; it depends on the length of the relationship, the degree of dependence one side built on it, and how much investment or exclusivity was expected in return — all of which point toward the long end of the range on an eighteen-year, 31%-of-revenue arrangement like this one.
Rather than warrant around a relationship neither side could fully define, the parties restructured the deal to price the uncertainty directly. The purchase agreement made completion of a short written term letter with the distributor — confirming a two-year initial term, 180 days' notice thereafter, and continued exclusivity — a closing condition, obtained with the seller's help before funding. On top of that, $650,000 of the purchase price was structured as a two-year earnout tied to Atlantic Canada revenue, so that if the relationship deteriorated in year one or two for reasons connected to the change of ownership, the buyer was not paying full price for revenue that did not survive the transition.
Had the buyer closed without the term letter and later wanted to exit or restructure the relationship — the most likely trigger for a dispute — it would have faced a wrongful-termination claim for damages equal to the profit the distributor would have earned during a court-determined reasonable notice period, potentially six to eighteen months, on a relationship worth close to $2 million in annual revenue to the distributor's own business. Conversely, had the distributor walked away first, the buyer would have had no written exclusivity or minimum-volume commitment to enforce, and no contractual floor under 31% of the business it had just paid for.
The tell was how casually the absence of a contract was described internally: staff on both sides referred to "our arrangement" with the distributor the same way they referred to any other supplier relationship, with no sense that anything unusual was missing. An eighteen-year relationship generating a third of revenue that nobody thought to formalize is not a minor gap in the data room — it is a real, currently unrecorded liability sitting on one side of the ledger and an asset the buyer cannot cheaply exit sitting on the other.
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