A no-shop covenant is the seller’s specific promise, inside a letter of intent or definitive agreement, not to solicit, encourage, share information with, or negotiate toward a competing offer — the substantive obligation that gives an exclusivity period its teeth.
Exclusivity and the no-shop covenant are frequently discussed together in Ontario LOI practice because they work as one mechanism: exclusivity sets how long the restriction runs, and the no-shop covenant sets what the seller is actually forbidden from doing during that time. Treadstone Law’s own guidance on Ontario LOIs treats the exclusivity clause as one of the few provisions that binds immediately, alongside confidentiality, cost allocation and governing law, even while the headline price and structure remain non-binding. A no-shop covenant is typically drafted with more than one layer: a promise not to actively solicit competing bids, a separate and usually stricter promise not to even negotiate with a buyer who approaches unprompted, and often a duty to tell the buyer promptly if an unsolicited approach arrives at all.
The covenant tends to get stricter as a deal moves from LOI to definitive agreement. At the LOI stage it is common ground that most sellers do not also demand a break fee for a buyer walking away, but it is worth the parties discussing one precisely because the no-shop covenant is asking the seller to give up optionality it would otherwise have. By the time a definitive share or asset purchase agreement is signed, the no-shop obligation is usually paired with a break fee running the other way — payable by the seller if it breaches the covenant to accept a better offer — so the restriction and its consequence sit in the same document.
During a seventy-five-day exclusivity window, a seller receives an unsolicited approach from a competing strategic buyer offering a materially higher price. Under a standard no-shop covenant, the seller cannot open discussions, share diligence materials, or even signal interest to the new party without breaching the LOI — its only permitted response is to decline and, if the covenant requires it, notify the original buyer that an approach occurred. If the seller instead engages with the new bidder, it triggers whatever break fee or damages remedy the original agreement attached to a no-shop breach.
See also: Exclusivity period · Break fee · Definitive agreement.
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