Breaching the Exclusivity Clause in a Business Sale LOI: What Happens in Ontario

You sign a letter of intent, spend weeks and real money on due diligence, and then find out the seller has been quietly talking to another buyer the entire time. If your LOI included an exclusivity clause, this isn't just frustrating — it may be a breach of a binding contractual promise, even though most of the LOI itself was never meant to be enforceable.

That distinction — between an LOI's generally non-binding commercial terms and its often-binding "process" provisions — is the key to understanding what a buyer can actually do when a seller keeps shopping the business.

Why an Exclusivity Clause Can Be Binding Even in a "Non-Binding" LOI

Most letters of intent are deliberately structured so the price, structure, and other commercial terms are non-binding — a statement of intent to negotiate a definitive agreement, not the agreement itself. This gives both sides room to adjust terms as due diligence unfolds.

But LOIs typically carve out specific provisions the parties intend to be enforceable immediately, regardless of whether a final deal ever closes. Exclusivity (sometimes called a "no-shop" clause), confidentiality, and cost allocation are the classic examples. The whole point of an exclusivity clause is to give the buyer a defined window to invest in due diligence and negotiation without the seller simultaneously running a competing sale process — and that protection would be meaningless if it weren't enforceable on its own terms.

Whether your specific LOI's exclusivity clause is binding comes down to its wording. Look for:

• Express language stating the exclusivity (and related) provisions are binding notwithstanding the non-binding nature of the rest of the LOI.
• A clearly defined exclusivity period (a specific end date or duration).
• Clear scope — does it prohibit the seller from soliciting new offers, negotiating with other parties, providing information to competitors, or all of the above?

What Counts as a Breach

Typical exclusivity clauses prohibit the seller from doing some combination of:

• Soliciting, encouraging, or inviting offers from other prospective buyers.
• Negotiating with, or providing due diligence materials to, another prospective buyer.
• Entering into an agreement with another buyer during the exclusivity period.

Whether a seller's specific conduct breaches the clause depends on its exact wording — a seller who merely fields an unsolicited inquiry and declines to engage may be in a different position than one who actively negotiates or shares confidential information with a competing buyer. This distinction matters and is worth reviewing carefully against what actually happened.

What a Buyer Can Do If the Seller Breaches Exclusivity

1. Send a formal notice of breach

A lawyer's letter putting the seller on notice — identifying the clause, the conduct, and the demand to stop — is usually the fastest, lowest-cost first step. Sellers who are genuinely still interested in your deal (rather than actively trying to exit it) often course-correct once the exposure is made concrete.

2. Seek an injunction, in serious or urgent cases

Where a seller is actively negotiating toward a competing sale, a buyer may be able to seek urgent injunctive relief to stop the seller from proceeding — for example, from signing a competing agreement — while the exclusivity clause is still in effect. This is a more aggressive, time-sensitive step, and it requires acting quickly; courts generally expect a party seeking urgent relief to move promptly once they learn of the breach.

3. Claim damages for the breach

Even where an injunction isn't sought or available, a buyer can pursue damages for losses caused by the breach — commonly, costs already sunk into due diligence and negotiation in reliance on the exclusivity commitment. Some LOIs also include a cost-reimbursement or break-fee provision specifically for this scenario, which can simplify (and cap) what's recoverable.

4. Decide whether to keep negotiating or walk away

A breach of exclusivity doesn't necessarily mean the underlying deal is dead — sometimes buyers choose to address the breach directly with the seller and continue toward a definitive agreement, particularly if the seller's competing conversations didn't go anywhere. Other times, the breach signals the seller was never fully committed, and the buyer is better off cutting losses and pursuing whatever remedy the exclusivity clause supports.

What This Means for How You Draft the Next One

If you're a buyer negotiating an LOI, an exclusivity clause is only as useful as its enforceability and its remedies. Before signing, consider pushing for:

• Explicit language making exclusivity (and confidentiality) binding regardless of the rest of the LOI's non-binding status.
• A defined exclusivity period long enough to genuinely complete diligence, with a clear mechanism to extend it if needed.
• A specific remedy — a break fee, or cost-reimbursement obligation — that's simpler to enforce than a general damages claim.
• Clear scope covering not just signing a competing deal, but soliciting or negotiating with other buyers during the period.

Frequently asked questions