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Exclusivity Agreements

 

Exclusivity or Lock-Out Agreements - are they worth the paper they're written on?

First, what are exclusivity or lock-out agreements – and is there a difference between the two?

There’s no difference between the two. They’re just different names for an agreement under which a seller promises a potential buyer not to sell the property to anyone else for a defined period.

Importantly, there’s no obligation on the seller to sell the property to the buyer within that period = or at all – and no promise by the buyer to buy it.

So, what’s the point of such agreements?

That’s a good question! From a purely legal perspective, they’re of limited value. There’s nothing to stop the seller from waiting until the period has ended and selling the property to someone else.

From a commercial or negotiating perspective they can be quite useful. There would be little point in a seller entering into such an agreement if he intended to sell to someone else anyway, so normally the seller and the buyer enter into them in good faith. One of the key issues is the length of the period – the longer it is, the bigger the commitment.

In practice, once the parties have gone through the exclusivity period, they will often go on to exchange contracts, assuming that they have continued to show good faith to each other.

Do these agreements usually have any other terms?

It’s purely a matter of negotiation. An Exclusivity Agreement can contain whatever terms the parties wish to put in it.

It could provide for a fee to be payable by the buyer in exchange for the property being taken off the market for a period – but the buyer has to recognise that the fee will usually be non-refundable and that the seller will have no obligation to sell the property at the end of the period.

It may provide for the parties to do certain things during the period – perhaps for the buyer to carry out site investigations or for both parties to progress the transaction towards exchange of contracts. Both parties have to understand  though that those obligations will be of limited value as they can’t then force the other party to go through with the transaction.