How an Exclusivity Clause Nearly Cost a Manager Her Business Deal

The situation

Fatima had worked as an electrician for eleven years, the last four of them managing the day-to-day operations of a mid-sized electrical contracting business in Kitchener for its owner, who was ready to retire. The owner had built the business over two decades, and when he decided to sell, he offered Fatima first right to buy it — she knew the crews, the commercial clients, and the equipment better than anyone. Somewhere around $1,100,000 was the figure they landed on after a few conversations, based roughly on the business's recent earnings and the value of its trucks and equipment.

Before either side had lawyers involved, the owner's accountant, Halima, drafted a short letter of intent — a document that sets out the broad terms both sides expect a deal to follow, usually before the detailed purchase agreement is drafted — and asked Fatima to sign it so they could start due diligence. Fatima read it, thought it looked routine, and signed. She brought it to Treadstone Law only afterward, once due diligence was already underway, mainly to have the eventual purchase agreement reviewed. That is when the letter of intent itself became the problem.

The problem

Most letters of intent are understood, correctly, as largely non-binding — a statement of intentions, not an enforceable contract, with the real obligations arriving later in the definitive purchase agreement. But a letter of intent can, and often does, carve out specific clauses that are binding regardless of what happens to the rest of the deal. Confidentiality obligations are almost always one. Exclusivity is another, and this letter had one: for a period of ninety days from signing, the owner agreed not to solicit, negotiate with, or accept an offer from any other prospective buyer, in exchange for Fatima committing the same in reverse and covering the cost of her own due diligence.

On its face, that clause protected Fatima — it kept the owner from shopping the deal to someone else while she spent money on accountants and lawyers to confirm the business was what it appeared to be. The trouble was what it also did to her. The clause was drafted as a genuine two-way street: Fatima was equally locked out of negotiating to buy any other electrical contracting business, or even seriously entertaining one, for the same ninety days. She had not thought to ask for that carve-out removed or narrowed when she signed, because she had no other deal in mind at the time and the clause read, to her, as one-directional protection rather than a mutual restriction.

Six weeks into due diligence, a second, larger electrical contracting business in the region came up for sale unexpectedly, through a broker, Eun-ji, whom Fatima had known for years — a business roughly twice the size of the one she was already buying, at a price she could plausibly have stretched to reach with a different financing structure. It was a better opportunity on paper. But the exclusivity clause she had signed meant that pursuing it, even just taking an introductory call with the broker to discuss terms, would have put her in breach of a binding term in a document she had already signed. Due diligence on the Kitchener deal was also revealing a real issue: two of the business's largest commercial contracts were up for renewal within the year, with no guarantee the clients would stay, which meant the $1,100,000 price looked less certain than it had six weeks earlier.

What we did

1. Confirmed the exclusivity clause was in fact binding. We reviewed the letter of intent's language closely. Unlike the surrounding paragraphs on price and structure, which were expressly stated to be non-binding and subject to a definitive agreement, the exclusivity and confidentiality sections used mandatory language and were carved out as binding on their own terms. That is a standard and enforceable structure for a letter of intent in Ontario, and there was no credible argument that this clause did not mean what it said.
2. Advised against breaching it. Fatima's first instinct was to quietly take the broker's call anyway and worry about the letter of intent later. We advised strongly against that. A breach of a binding exclusivity clause could expose her to a claim for the costs the seller had incurred in reliance on her commitment, and — just as importantly — it would hand the seller a clean reason to walk away from the Kitchener deal if the renegotiation that was already needed did not go her way, at a point where she had already spent real money on due diligence.
3. Used the renewal risk to renegotiate price instead. Rather than trying to escape the exclusivity period, we used the two at-risk commercial contracts uncovered in due diligence as legitimate grounds to reopen the price conversation. The seller could not credibly walk away from that conversation and shop the business elsewhere without breaching his own exclusivity promise, which gave Fatima real leverage she would not otherwise have had.
4. Negotiated a price reduction tied to contract retention. We proposed, and the seller accepted, a reduced closing price of about $980,000, with a further holdback of roughly $70,000 payable only if both at-risk commercial contracts renewed within six months of closing. That reallocated the renewal risk the seller had been asking Fatima to absorb in full back onto the party who knew those clients best.
5. Let the exclusivity period run its course rather than fight it. Because the ninety-day window was genuinely binding and close to expiring by the time terms were re-settled, we advised Fatima to let it lapse naturally rather than pay for a legal opinion contesting it. By the time the Kitchener deal closed, the exclusivity period had ended on its own, and the larger business had already been sold to another buyer.
6. Added a proper exclusivity carve-out to future negotiations. For the purchase agreement itself, and for Fatima's own future dealings, we built in language distinguishing genuine deal-protection exclusivity from an open-ended restriction on a buyer's ability to look elsewhere, so any future letter of intent she signs limits the restriction to the specific transaction, not to the entire market.

The outcome

The Kitchener deal closed at roughly $980,000 rather than the original $1,100,000, with the $70,000 holdback tied to the two contract renewals. One of the two contracts renewed within the six-month window; the other did not, so Fatima received about $35,000 of the holdback rather than the full amount — a partial recovery that still left the final price meaningfully below where it started, and well below what she would have paid if the letter of intent's original terms had gone unchallenged. The larger business she had wanted to pursue sold to someone else during the exclusivity period, and there was no way to recover that opportunity once it was gone.

Fatima's business has performed steadily since closing, and the price adjustment meant she was not carrying debt against contracts that, in the end, only partly renewed. But the missed opportunity was real and is not something the renegotiation could undo — it is the kind of loss that comes from signing a document before understanding exactly what it commits you to, not from anything that happened afterward. The eventual outcome was the best available once the exclusivity clause was already in force; it was not the outcome Fatima would have had if she had asked for the clause to be narrowed before she signed.

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