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exclusivity

Also called: exclusivity period, no-shop clause, no-shop, exclusivity clause

A clause in a letter of intent that bars the seller from talking to other buyers for a set period while the buyer runs due diligence and prepares the final contract. Also called a no-shop clause.

Exclusivity (a no-shop clause) is the part of a letter of intent in which the seller promises not to negotiate with, or seek offers from, any other buyer for a fixed period. Unlike most of the letter of intent, it's usually binding. The buyer asks for it because due diligence and legal work cost time and money, and they don't want to spend it only to be outbid at the last minute.

For the seller, exclusivity is the moment leverage shifts. Before it, the seller can compare offers; during it, they can't, and the buyer knows the seller's alternatives are on hold. If the buyer finds problems in due diligence or simply changes their mind about the price, the seller has to negotiate from a weaker position, with the clock running.

So negotiate the exclusivity itself: keep it as short as the checks genuinely need (weeks to a few months), tie it to a clear timeline, and agree what ends it early, for example if the buyer tries to lower the price or misses a deadline. Talk seriously to other potential buyers before signing, not after; once exclusivity starts, that option is gone.

Example

The letter of intent for the sale of GarageDesk gives the buyer 90 days of exclusivity. Due diligence is planned for about six weeks, with closing in January.

Six weeks of checks is roughly 42 days, so 90 days leaves more than a month and a half of slack for drafting the contract and fixing what due diligence finds (such as the missing IP clause in the contract developer's agreement). For those 90 days the founders can't take up the investor's offer or talk to any other buyer, which is why their lawyer checks the timeline before they sign.

Common mistakes

  • Signing a long exclusivity by default. Match it to the real length of the checks.
  • No early-exit terms. Agree that exclusivity ends if the buyer lowers the price or misses dates.
  • Talking to other buyers too late. Compare offers before you sign, not during.
  • Breaking it. It's usually binding; talking to others during exclusivity can cost the deal or more.