When a Buyer Wants Your Family to Sign a Non-Compete Too

The situation

Niloufar had built her pharmacy in Sault Ste. Marie over close to fifteen years, growing it from a single storefront into a business worth an estimated $2.7 million. Her spouse, Minh, worked full-time as an air traffic controller and had no day-to-day role in the pharmacy, though he had co-signed some of the original financing and held a small ownership stake as a result. When Niloufar decided it was time to sell, rather than take on the stress of hiring and expansion herself, she found a ready buyer close to home: Reza, who already owned a competing pharmacy across the city and had been quietly looking to acquire a second location for two years.

A sale to a direct competitor has a particular shape. Reza already understood the business, the local prescribing physicians, and the patient base, which made due diligence faster than it might otherwise have been. But it also meant Reza had a sharp, specific interest in making sure that once he paid for the goodwill of Niloufar's pharmacy, nobody connected to the seller could simply open up down the street and win the same patients back. That interest is what restrictive covenants in a business sale agreement are for — clauses in which the seller agrees not to compete with the buyer, and not to solicit the business's customers or staff, for a defined period and within a defined area. Niloufar expected to sign one. What she did not expect was who else the buyer's lawyers wanted to sign.

What the draft agreement revealed

When the buyer's proposed agreement of purchase and sale arrived, Niloufar sent it to our team for review before she signed anything. The restrictive covenant section was broader than a typical two-year, city-wide non-compete. It defined the parties bound by the covenant to include Niloufar, any "associated person," and specifically named her brother. A note from Reza's side explained why: the brother worked part-time at the pharmacy as a technician and had, in casual conversation during due diligence, mentioned an interest in eventually running his own pharmacy.

That single line changed the shape of the negotiation. Niloufar's brother was not a shareholder of the business and was not a party to the sale agreement. He had never been offered any of the sale proceeds, and he had a professional life of his own to build. Under Ontario law, a restrictive covenant is a contract term, and a contract only binds the people who sign it and receive something in exchange for the promise, a concept lawyers call consideration. A clause purporting to restrict someone who is not a party and has not been paid anything is not simply aggressive — it is very likely unenforceable against that person, because there is no agreement between the buyer and the brother at all, only a one-sided restriction the seller has agreed to impose on somebody else's future.

Minh's position was different again. He held a minority ownership interest and was, technically, a seller under the share structure, which meant a covenant naming him directly had at least a contractual basis. But he had never worked in the pharmacy, had no patient relationships, and had no realistic way of competing with it. Binding him to the same non-compete as Niloufar made little commercial sense and, if challenged later, would likely be seen as broader than necessary to protect the goodwill Reza was actually buying — a court asked to enforce a non-compete looks at whether its scope, geography and duration go no further than needed to protect a legitimate business interest, and a covenant against someone with no ability to compete struggles to meet that test.

So the buyer's draft created two separate problems: a covenant against a non-party that likely could not be enforced as written, and a covenant against a passive shareholder that was broader than the sale justified. Left alone, either one risked becoming a fight after closing rather than before it — the worst time for a dispute like this to surface.

What we did

1. Explained the enforceability gap to Niloufar before any counter-offer went out. She needed to understand that agreeing to "cover" her brother in the sale agreement would not actually bind him — only a separate agreement, signed by him, with something given in exchange, could do that. That distinction shaped everything that followed, because it meant Reza's real leverage was persuasion and payment, not a clause in someone else's contract.
2. Proposed splitting the covenant into two instruments. Niloufar's own non-compete and non-solicit obligations stayed in the main sale agreement, matched to the two-year, defined-radius standard that reflected the goodwill she was actually selling. Any restriction on the brother would need to be its own agreement, negotiated directly with him and independently advised, not folded into Niloufar's sale.
3. Narrowed the request that would go to the brother. Rather than a full non-compete, we suggested an eighteen-month, single-location restriction limited to a defined radius around the pharmacy, in exchange for a separate payment — not sale proceeds, but direct compensation to him for a promise he was choosing to make on his own account.
4. Argued for Minh's release from the covenant entirely. Because he held no operational role and no patient relationships, we made the case that binding him added legal risk to the agreement without adding real protection for Reza. We proposed his minority shares transfer with standard confidentiality obligations only, leaving the competitive restriction to the person who actually ran the business.
5. Recommended a holdback tied to compliance rather than an expanded covenant. To give Reza comfort beyond the paper itself, we proposed that a portion of the purchase price be held in escrow for the covenant period, released to Niloufar if no breach occurred — a mechanism that gave the buyer real financial protection without needing to reach outside the actual selling parties.

The outcome

The renegotiation took a little over five weeks and required two rounds of back-and-forth between the lawyers on both sides. Reza did not get everything the first draft asked for, and neither did Niloufar's side. The final agreement bound Niloufar to a standard two-year, defined-radius non-compete and non-solicit tied to the pharmacy's existing patient base. Minh was released from any competitive covenant, retained only ordinary confidentiality obligations, and transferred his minority interest as part of the closing.

Niloufar's brother, after speaking with his own independent lawyer, signed a separate agreement directly with Reza: an eighteen-month restriction, narrower in geography than the original draft, in exchange for a payment of roughly $18,000, paid to him personally rather than folded into the sale price. He kept the door open to running a pharmacy of his own in the city after that period, just not within the immediate area or right away.

To close the gap this created in Reza's comfort level, roughly $160,000 of the $2.7 million purchase price was placed in escrow for the two-year covenant period, to be released to Niloufar if she complied and available to Reza as a remedy if she did not. The sale closed on that basis about seven weeks after the original draft agreement had first raised the issue.

Neither side walked away with the deal they had opened with. Reza did not get the broad family-wide covenant the first draft asked for, and had to accept that the brother's restriction was time-limited and geographically narrower than he wanted. Niloufar accepted a purchase price with part of it held back for two years rather than paid in full at closing, and her brother gave up his preferred location for eighteen months in exchange for a payment far smaller than what he might have earned building a client base there over that time. It was a compromise built out of what the law would actually enforce, not out of what either side would have preferred to sign.

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