Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice.
Updated June 2026 · England & Wales
When someone is looking to buy the shares of a company or the business and assets of a trading operation, the process rarely moves at speed. Due diligence takes weeks, advisers need to be instructed, and heads of terms get passed back and forth.
During that window, a buyer investing time and money does not want to discover the seller has been talking to a rival bidder behind the scenes. An exclusivity agreement, sometimes called a lock-out agreement, is the short contract that shuts that door.
It commits the seller to dealing only with one buyer for a defined period, giving that buyer the breathing room to investigate the target and move towards a binding sale. This page walks through how these agreements work in England and Wales, what they typically cover, and the practical points worth thinking through before signing one.
What this document is
An exclusivity agreement is a short, standalone contract signed early in a transaction, usually alongside or just after heads of terms. Its core purpose is straightforward: the seller promises not to negotiate, solicit offers, or share information with any other potential buyer for an agreed period of time.
In return, the buyer gets a protected window to carry out due diligence, arrange finance, and negotiate the main sale agreement without the threat of a competing bid appearing mid-process. In English law, an agreement to negotiate in good faith is generally not enforceable on its own, but a properly drafted lock-out clause that simply prevents the seller from dealing with third parties for a fixed, certain period can be enforced.
That distinction matters. The document is typically used in both share sales, where the entire issued share capital of a company is being transferred, and asset sales, where the business, goodwill, and specific assets are sold rather than the corporate shell. It sits separately from the share purchase agreement or asset purchase agreement that follows.
How to use this document
Agree the commercial terms first. Before drafting the exclusivity document, both sides should have aligned on the deal structure, a price or pricing mechanism, and the basic shape of the transaction. Most exclusivity agreements follow on from signed heads of terms, so the lock-out period is protecting a deal that already has real momentum behind it.
Decide the length of the exclusivity period. Pick a window that realistically covers due diligence and negotiation of the main agreement, commonly four to twelve weeks depending on complexity. Too short and the buyer runs out of runway; too long and the seller is off the market if things stall. The period needs a clear end date to be enforceable.
Define what the seller cannot do. The agreement should spell out the restricted activities: no soliciting offers, no responding to approaches, no providing information to third parties, and no continuing earlier discussions. Being specific here avoids arguments later about whether a chance conversation at a conference breached the terms.
Cover costs and break fees carefully. Some agreements include a contribution towards the buyer's costs if the seller walks away, though these need drafting with care to avoid being challenged as a penalty under English law. Think through what happens if either party backs out and whether any costs should be recoverable.
Plan for termination and what comes next. Set out when the arrangement ends, whether by expiry of the period, completion of the main sale, or early termination for breach. Also consider confidentiality obligations that should survive, because sensitive information will almost certainly have been shared during the exclusive window.
Q Is an exclusivity agreement legally binding in the UK?
Yes, provided it is drafted properly. A lock-out clause that prevents the seller from negotiating with third parties for a fixed, certain period is enforceable under English law. What is not enforceable is a vague promise to negotiate in good faith, which is why well-drafted agreements focus on what the seller must not do rather than what they must actively do.
Q How long should the exclusivity period last?
There is no fixed rule, but four to twelve weeks is common for SME transactions. The right length depends on the complexity of the business, how much due diligence is needed, and whether third-party consents or financing are involved. Both sides should agree a period that is realistic, because asking for extensions later can be awkward and shift leverage.
Q Can the seller withdraw from the deal during exclusivity?
The exclusivity agreement does not usually force the seller to complete the sale. It only stops them from negotiating with other buyers during the agreed window. The seller can still walk away from the buyer they are dealing with, although the agreement may include cost contributions or other consequences that apply if they do.
Q Do I need an exclusivity agreement for every business sale?
Not always. Smaller or straightforward deals sometimes proceed without one, particularly where the parties are trusted and timelines are short. But where a buyer is committing real money to legal fees, accountants, and surveyors before completion, an exclusivity agreement is a sensible way to protect that investment from competing bidders.
Q What is the difference between an exclusivity agreement and heads of terms?
Heads of terms set out the commercial shape of the deal, such as price, structure, and timeline, and are usually largely non-binding. An exclusivity agreement is a focused, binding contract dealing only with the lock-out period. The two are often signed together, but they do different jobs and should be treated as separate documents.
Q Does exclusivity apply to the buyer as well as the seller?
Typically it is a one-way obligation on the seller, because the buyer is the party sinking cost into due diligence. In some deals, particularly auction-style processes or where the buyer has competing targets, the seller may ask for a reciprocal commitment. That is a matter for negotiation and depends on the leverage each side has.
Q What happens if the seller breaches the exclusivity agreement?
The buyer may be able to claim damages for losses flowing from the breach, which in practice often means wasted costs on due diligence, legal fees, and financing. Injunctions are theoretically possible but rare. This is why some agreements include agreed cost contributions, which can make the remedy clearer and quicker to enforce.
Exclusivity arrangements look short and simple, but the length of the lock-out, the scope of the restrictions, and what happens if the deal stalls all have commercial consequences. An experienced legal adviser can help you think through what these terms mean for your transaction based on what you describe on the call.
✓A clear explanation of how lock-out periods work for what you describe
✓What to watch out for when agreeing the length and scope
✓Plain-English answers to your specific questions about the deal
✓Practical perspective on your next steps before signing
Personal call · For information only · Independent advisers
Written & reviewed by
Brad Askew Solicitor (non-practising)
Brad is on the roll of solicitors of England & Wales but does not hold a practising certificate and does not provide legal advice. LegalDocuments.co.uk is not a law firm and does not provide regulated legal advice.
This article is for general information only. It is a tool to help you find your way — not legal advice, and not a substitute for speaking to a qualified adviser about your situation.
