The Purpose of Exclusivity Agreements
Exclusivity agreements come in a variety of forms as they exist in a number of areas of law and are intended to meet a range of objectives. However, the primary purpose of each exclusivity agreement is to define a relationship in which (as a rule) two parties, excluding third parties, agree to deal only with one another. The duration of the agreement; whether it is bilateral or unilateral in its rights and limitations; if they are only two parties, or perhaps more, all such matters are highly dependent on the jurisdiction in which the agreement stems from business, mergers and acquisitions, and real estate.
When two commercial parties negotiate with each other, they can sign an exclusivity agreement to consolidate the economic relationship between them and prevent third parties from intervening. The nature of this type of exclusivity agreement – and the desire to bring stability into the relationship – means that such agreements can last for months or years until the bargaining power of one or the other party changes significantly. Often there is a relationship between the buyer and the seller, and the seller obliges the buyer to buy his goods only from that seller and not from the seller’s competitors. An example of this situation would be Del Monte, which requires Whole Foods grocery stores to buy all bananas only from Del Monte and not from Chiquita or another grower. Certainly, the reverse situation may occur: Whole foods could be set in Del Monte so that the latter could sell their bananas only to the former. However, this scenario is much rarer.
Two companies considering a merger sign an exclusivity agreement to prevent one or both parties from seeking other goals or partners from third parties. These arrangements are shorter and draw the attention of the parties during the discussion phase. Inherent in these agreements are certain provisions, such as accessibility, no agreement, termination and changes. The parties allow each other access to files and relevant data. The parties are of course obliged to confidentiality, especially if the transaction is not completed. It is precisely such a scenario that is dealt with in the “no-agreement” rule, according to which the parties, although they are exclusively negotiating with each other, are not obliged to conclude a contract. So you can go away. A notice of termination speaks of the natural expiry of the contract or the early termination by one of the parties. Finally, certain provisions of the agreement may well prohibit parties from making any material changes to the way the business operates during the cut-off period.
Brokers use exclusive agreements, so-called exclusive listing agreements, for their entire business. When a homeowner signs an exclusivity agreement, he agrees that only one broker – or the broker’s firm – sells his home, including listing, showing, and completing the sale. No other broker is allowed to disturb the transaction, and the homeowner is “locked in”, as they say. The homeowner in turn receives the benefit of the resources of the real estate agent, such as his business sense or a large buyer register. The homeowner is always free to cancel the exclusive contract. However, this can be associated with a penalty. If the house is sold to a buyer within (usually) 30 days of the termination of the contract and the buyer has been called in by the broker, the broker is still entitled to collect a commission for the sale.