Exclusivity (No-Shop) Clauses in an Ontario Business Sale LOI

A buyer who has just spent weeks negotiating a letter of intent doesn't want to find out the seller is quietly taking calls from other interested buyers while due diligence is underway. That's exactly what an exclusivity clause — often called a "no-shop" clause — is designed to prevent.

Unlike the purchase price or deal structure in an LOI, which are usually non-binding until a final agreement is signed, exclusivity provisions are typically drafted to be enforceable immediately. Understanding what one actually restricts, and what it doesn't, matters whether you're the buyer relying on it or the seller agreeing to it.

What an Exclusivity Clause Restricts

A typical no-shop clause in an Ontario business-sale LOI prevents the seller (and often its officers, directors, or advisors acting on its behalf) from, for a defined period:

• Soliciting offers or expressions of interest from other prospective buyers.
• Negotiating with any other party about a sale of the business, its assets, or its shares.
• Providing due diligence materials to a competing prospective buyer.
• Entering into any agreement with another party for a competing transaction.

The point is to give the buyer a clear field to complete due diligence and negotiate the definitive purchase agreement without the seller using the buyer's offer as leverage to shop for a better one elsewhere.

What It Typically Does Not Restrict

An exclusivity clause is narrower than it might sound. It generally does not, on its own:

• Require the seller to sell the business to the buyer at all — the seller can still walk away if a definitive agreement is never reached, subject to whatever the LOI separately says.
• Restrict the seller's ordinary-course operation of the business during the exclusivity period.
• Prevent unsolicited approaches the seller did not seek out — though many clauses require the seller to disclose (and sometimes decline to engage with) any inbound approach.
• Guarantee the deal will close — exclusivity buys the buyer time and protection, not a completed transaction.

How Long Does Exclusivity Last?

Exclusivity periods are a negotiated deal term, not something fixed by law — there is no standard or default length, and how long one should run depends on the size and complexity of the specific deal, the scope of due diligence expected, and how much leverage each side has going into the negotiation. Don't assume a "typical" period; whatever length is right for your transaction should be discussed with your lawyer and set out explicitly in the LOI itself.

What Happens If a Seller Breaches Exclusivity

Because exclusivity clauses are usually drafted as binding, breaching one can expose a seller to a claim, separate from — and regardless of — whether the underlying deal ever closes. What a buyer can actually recover if a seller breaches exclusivity depends on:

• What the LOI itself says about remedies (some spell out specific consequences; many don't).
• Whether the buyer can show it suffered a loss because of the breach.
• General contract-law principles, since an exclusivity clause is, at that point, simply a binding contractual promise like any other.

This is exactly the kind of dispute where the specific wording of your LOI controls the outcome — there is no one-size-fits-all answer.

A Checklist Before You Sign an Exclusivity Clause

If you're the buyer:

• [ ] Confirm the exclusivity period is long enough to realistically complete due diligence.
• [ ] Confirm the clause covers solicitation and negotiation, not just one or the other.
• [ ] Check whether the seller must disclose unsolicited inbound approaches during the period.
• [ ] Understand what remedy you'd actually have if the seller breaches it.

If you're the seller:

• [ ] Confirm the period isn't open-ended or unreasonably long relative to the deal's complexity.
• [ ] Check whether ordinary-course operation of the business is expressly carved out.
• [ ] Understand that this clause is likely binding even though most of the rest of the LOI isn't.
• [ ] Have a lawyer review the exact scope of what "soliciting" or "negotiating" covers before agreeing.

Frequently asked questions