Anonymised, illustrative composite. The letter of intent gave the buyer six months of exclusivity. It did not require the buyer to have done anything by any date inside that window.
At a glance
A family that had built a distribution business over three decades received an unsolicited approach from a financial buyer and, wanting to move quickly and avoid the cost of a formal sale process, negotiated a letter of intent directly with the buyer’s development team before engaging its own deal counsel. The buyer proposed, and the seller accepted, a flat six-month exclusivity period.
Nothing in the LOI required the buyer to reach any particular point in diligence, financing, or documentation by any date inside that six months. The clause simply stated that the seller would not solicit, negotiate with, or provide information to any other prospective buyer for 180 days from signing.
An exclusivity period this long, with no milestones inside it, functions as a long, essentially free option for the buyer: it can hold the business off the market, take as long as it wants at each stage of diligence, and walk away at any point in the six months at no cost, while the seller has no leverage to demand progress and no contractual date by which it can treat the process as over and look elsewhere. The norm for exclusivity periods runs “thirty to sixty days for smaller deals; sixty to ninety days for larger or more complex ones,” — a six-month grant was more than double the upper end of that range for a deal of this size. It is worth being exact about what that range is and is not. It is market convention, not law: as the same firm’s no-shop guidance puts it, “exclusivity periods are a negotiated deal term, not something fixed by law — there is no standard or default length.” No Canadian statute caps exclusivity, and nothing made this clause unenforceable for being long. A seller who signs 180 days has 180 days, and the only cure is the one this seller eventually bought: an amendment.
By month four, diligence had slowed noticeably and the buyer had not produced a financing commitment letter, a draft purchase agreement, or any indication of a firm timeline to close. The seller had no contractual mechanism to ask why, and no ability to speak with the other party who had approached the business around the same time, because that party had since moved on.
180 days of exclusivity granted, against a typical range of sixty to ninety days for a deal of comparable size and complexity — the grant was between two and three times the length that would normally be expected, with zero interim checkpoints inside it.
By the time the buyer finally circulated a draft purchase agreement, five of the six months had elapsed, leaving the seller with a single month to negotiate definitive documentation before the exclusivity period’s own expiry — a compressed final stretch that undid whatever time advantage the long exclusivity grant was meant to buy the parties in the first place.
Exclusivity is one of the few LOI provisions the market treats as binding on its own terms, which is exactly why its length and structure matter more than most of the rest of a non-binding letter. Because the clause bound only the seller’s conduct and imposed no reciprocal obligation on the buyer to hit any date, it transferred all of the schedule risk in the deal to the party with the least ability to bear it — a seller who had already told staff and, informally, several customers that a sale was under way.
When the seller’s newly engaged counsel reviewed the clause in month four, the available fix was narrower than it should have been at signing: rather than a unilateral walk-away right the clause did not provide, counsel negotiated an amendment adding two interim milestones to the remaining exclusivity period — a financing commitment letter within thirty days, and a draft purchase agreement within forty-five — with the exclusivity automatically terminating if either was missed, rather than simply running out at six months regardless of progress.
On the next deal, the seller’s own advisor set the template rather than accepting the buyer’s: exclusivity capped at sixty days, with the clock resetting only if the buyer met a stated set of milestones on time, putting the burden of demonstrating progress back on the party asking to keep the business off the market.
The signal to check for before signing is simple and easy to miss under time pressure: does the exclusivity clause impose any obligation on the buyer at all, or only on the seller? A clause that reads as one-directional — the seller may not talk to anyone else, with no matching commitment about what the buyer will deliver and by when — is not a balanced accommodation to move quickly. It is a free option, and the length of the period is a rough measure of how expensive that option is for the side that granted it.
The glossary covers the mechanism at exclusivity period and no-shop covenant. A related failure on the same document — a non-binding price term used as leverage close to closing — runs through a retrade three days before the closing date.
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