Exclusivity buys the buyer a clean run at due diligence and costs you every other option while it runs. It is one of the few parts of a letter of intent that binds you. Keep it short, define exactly what you are promising, and make sure it ends by itself.
Our charges include applicable taxes. Disbursements are extra and billed at cost — itemized upfront, in writing, never hidden.
From $3,388.87 taxes included
Most of a letter of intent is not binding. Exclusivity is. So are confidentiality, who pays costs, governing law and the dispute clause. The LOI should say so in plain words — this section binds, these do not — because the fights that reach court are usually about which half of the document the parties thought they were signing.
Spell out the prohibited conduct rather than writing that you will deal exclusively. The standard set is: you will not solicit or entertain other offers, will not negotiate with anyone else, will not provide information to another prospective buyer, and will not sign anything with anyone else. Then decide separately whether you must tell the buyer if someone approaches you, and whether that notice includes the approaching party's name and terms. Sellers should resist naming.
Give it an expiry date rather than a duration tied to hope. Thirty to sixty days is the ordinary range for a small business deal, longer where financing, a franchisor consent or a regulatory approval sits in the critical path. No automatic renewal. Extensions only in writing. If the buyer wants more time, it should cost something — a deposit, a narrowed condition list, or the price confirmed in writing before the clock restarts.
The moment exclusivity starts, you are a seller with one buyer. That is the whole point from the buyer's side, and it is why the price should be agreed before the clock starts, not after. Put price, structure, the working capital expectation, the treatment of real estate and the key deal terms in the letter of intent. Vague LOIs get renegotiated during exclusivity, and always in the same direction.
Think about the remedy before you need it. Damages for a broken exclusivity promise are hard to prove, so parties use money instead: capped reimbursement of the other side's out-of-pocket costs, a deposit held in a lawyer's trust account, or a fixed break fee. A fixed fee has to be a commercially justifiable estimate of the loss rather than a punishment, or an Ontario court can decline to enforce it.
You also owe honesty. The Supreme Court of Canada recognized an organizing principle of good faith and a duty of honest contractual performance in Bhasin v. Hrynew, and extended it in C.M. Callow Inc. v. Zollinger to knowingly misleading a counterparty about how you will exercise a contractual right. Quietly running a second process while assuring a buyer you are not is now a legal exposure, not just a reputational one.
A no-shop stops you going looking. A no-talk stops you responding when someone finds you. They are different promises and sellers should treat them differently. Accept the no-shop. Push back on an unqualified no-talk, or carve out an unsolicited written proposal that your board reasonably determines is or could lead to a better deal, subject to telling the buyer and giving it a chance to match.
Where the seller is a corporation with outside shareholders, the board has its own problem. Directors owe their duty to the corporation, which the Supreme Court confirmed in BCE Inc. v. 1976 Debentureholders; Canadian law does not impose the Delaware-style duty to auction the company that American deal commentary assumes. But a board that has contracted away its ability to even consider a superior offer is exposed, which is why fiduciary outs, matching rights and a proportionate break fee travel together.
The buyer's ask is not unreasonable. It is about to spend real money on legal fees, an accountant's quality-of-earnings review, environmental work and lender diligence, and it will not spend that while you shop the file. Grant exclusivity, grant it once, and grant it with a date on it. What is unreasonable is open-ended exclusivity, or exclusivity granted before you have agreed what you are being paid.
Partly, and that is the trap. Price and structure are usually expressed as non-binding intentions. Exclusivity, confidentiality, cost allocation and governing law are usually intended to bind, and courts will enforce them. Ontario courts look at the whole document and the parties' conduct, so a letter that never says which parts bind can end up binding more than you meant. Say it clause by clause, and have the LOI reviewed before you sign it — it sets the terms you will spend the next two months defending.
Thirty to sixty days covers ordinary diligence and a first draft of the purchase agreement for a small business. Stretch it where third-party timing genuinely controls the schedule: bank credit approval, a franchisor's consent and disclosure obligations, a landlord's consent to assign, or a licence transfer. Do not stretch it because the buyer's advisers are slow. Tie any extension to a milestone the buyer has to actually hit, such as delivering a signed commitment letter.
If you signed a plain no-shop and no-talk, you generally cannot pursue it, and going ahead anyway is a breach that can cost you the buyer's costs or a break fee. That is the reason to negotiate a carve-out at the front end for unsolicited proposals, paired with an obligation to notify the current buyer and give it a right to match. In practice you can also acknowledge the approach, decline to engage, and ask the new party to come back after the exclusivity date.
Yes, and on smaller deals it is a fair test of whether the buyer is serious. Have it held in a lawyer's trust account rather than paid to you, and write down exactly when it is refundable, when it is credited against the price, and when the buyer forfeits it. A deposit that is refundable in every circumstance is a gesture, not a commitment. Where a buyer will not fund one, a capped reimbursement of your professional fees if it walks without cause is the usual alternative.
Retrading is common and it is why the LOI should have pinned the price and the assumptions behind it. Ask for the specific diligence finding that justifies the change, in writing. Genuine findings get priced or indemnified; manufactured ones do not survive being asked to be specific. Check your expiry date, because your leverage returns the day it passes. Our M&A flat fee starts at $3,388.87 with taxes included, and includes reviewing the letter of intent before you are locked in.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.