Templates creating exclusive negotiating rights
New Exclusivity and Lockout Documents
We have recently added to our Heads of Terms, Contract Formation and Exclusivity subfolder (in the Commercial Agreements Group) some new templates which can be used to create an “exclusive” or “lockout” arrangement between two parties involved in negotiating a definitive commercial arrangement or transaction.
What is “exclusivity” or “lockout”?
In this context, the words “exclusive” or “lockout” are interchangeable. Both expressions are used to mean in essence that you are able to negotiate with another person/entity and exclude them from doing the same with a third party for that period. In
This “lock out” can be established by use of a binding exclusivity agreement between you and the other person/entity whereby each of you undertakes to the other that, for a stated period, you and they will not engage in any rival negotiations or arrangements with any third party.
The objective is to ensure that, in good faith, the other party commits to negotiate and seeks to reach a definitive deal with you. If the other party
An exclusivity/lockout agreement can therefore provide a degree of protection for each party, although of course it does not confer a right to buy from or sell to or otherwise deal with the other party, and they will be free at the end of the period to do a deal with another if your negotiations have not led to a deal. If you do need to create a right to buy, sell or do a deal with your negotiating partner, you should instead consider entering into an agreement with them that confers an option to buy etc.
What is the benefit for each party of exclusivity/lockout?
You might spend a good deal of time and expense working
If you can seek to avoid the other party discussing a rival deal with a third party while you and the other party spend a reasonable amount of time exploring a possible deal, that will tend to increase the chance that you will achieve a deal. If you can stave off the prospect of a third party getting a deal instead of you, you may not only avoid seeing your third party competitor gaining at your expense but you might also gain a profitable deal.
Furthermore, the time, trouble and expense incurred by you could be considerable: apart from time spent by your management in discussions with the other party, you may need to gather and
About these new documents
There are four new templates. Two of them are designed to be used as stand-alone pre-contract agreements which precede a definitive full agreement setting out all of the terms of a commercial transaction. The Exclusivity Agreement includes confidentiality clauses and some minor optional provisions. The Lockout Agreement is similar to it but it does not contain confidentiality clauses and various provisions in it have been shortened and simplified so that it can be used for less complex and/or lower value proposed commercial deals.
The other two templates are designed to be used as part of
We suggest that you read the information accompanying each of these four new documents to see which suits your situation best. Incidentally, you might wish to use the Memorandum of Understanding (Commercial Transactions) BS.MOU.01 as a pre-contract document. It contains exclusivity/lockout provisions similar in effect to these four new documents. Depending on your particular needs, you can use it instead of one of our four new documents. You can find this document in this same subfolder.
When to use these documents
These four new documents are
The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.