Exclusivity should run for the shortest period that covers the buyer’s real diligence path, end on a fixed calendar date, and renew only when the buyer hands over something dated and specific. No automatic rollover. No clock the buyer starts. The paragraph binds you, and the day you sign it your competitive leverage stops.
Most of a letter of intent is a statement of intention. Price, structure, escrow: all subject to a definitive agreement nobody has drafted yet. The exclusivity paragraph is different. It takes effect on signature, and it transfers value from you to the buyer immediately and for nothing in return.
What it transfers is competition. Until you sign, the buyer is one of several. After you sign, the buyer is the only one, and knows it.
How long should exclusivity last in a letter of intent?
Exclusivity should last only as long as the buyer’s critical path, stated as a fixed number of days running from the signature date and expiring on a named calendar date. Thirty to forty-five days is a defensible opening position for a lender-financed sale of a privately held company. Ninety days is an assertion, not a rule.
Treat any number a buyer calls market as an assertion until it is sourced. No published deal-point study measures exclusivity duration for privately held companies of this kind, and the staged-bid conventions of a large banked auction are not your benchmark.
The length matters less than the shape. A sixty-day period that expires by its own terms is safer than a forty-five-day period that renews unless you send a notice. Ask the buyer what has to happen in those days: confirmatory diligence, a quality-of-earnings review, lender credit approval, a draft purchase agreement. Then set the days to that work.
I read the exclusivity paragraph and the governing law clause before I read the price.
What does a no-shop clause actually prohibit?
A no-shop in a letter of intent typically prohibits four separate acts, not one: soliciting other offers, negotiating with anyone else, furnishing information to anyone else, and entering into any agreement concerning a competing transaction. Each verb operates independently. You can comply with three and breach the fourth without ever getting close to a signed deal with another party.
Read the paragraph out loud and mark every verb. A broad no-shop often reaches:
- Soliciting or initiating contact with another prospective buyer, directly or through your broker or accountant.
- Negotiating or discussing a competing transaction, including the casual conversation you did not think of as a negotiation.
- Furnishing information to any other party, including leaving a data room open to someone who logged in last month.
- Entering into any letter of intent, term sheet, option, or agreement covering the equity, the assets, or a material line of business.
- Continuing a discussion already underway, which is an affirmative duty to terminate, not a passive duty to stop.
- Notifying the buyer of any inbound approach, sometimes with the identity of the party and the terms offered.
Not every paragraph reaches all six. The verbs you strike are freedoms you keep.
That last item deserves a hard look. A notice obligation converts your competitive intelligence into the buyer’s. If the buyer learns that nobody has called in five weeks, the buyer learns something about your leverage. If a notice duty stays in, narrow it to the fact of a written approach, without the identity or the economics.
Can you answer an unsolicited call from another buyer during exclusivity?
Answering an unsolicited approach during exclusivity can breach a broadly drafted no-shop, because clauses reaching “discussions” or “responding to” inquiries do not care who started the conversation. A narrow clause that bars only soliciting usually does not. Read your own paragraph before you reply to anything.
An unanswered email may be safe. A one-line reply saying you are unavailable may not be. The fix is a carve-out in plain words: you may receive an unsolicited communication and respond solely to say you are subject to exclusivity and cannot engage. Nothing more. That sentence protects relationships with parties who may matter again if this deal dies.
Without the carve-out, the exposure is the email you forwarded to your broker with the word “later” on it.
How should an extension of exclusivity be structured?
Every extension of exclusivity should be conditioned on a dated buyer deliverable, granted in a signed writing, and limited to a specific number of additional days. Automatic renewal, unilateral extension on notice, and tolling for “seller delay” all convert a fixed period into an open-ended one. The buyer should have to buy each additional week with proof of progress.
| Clause as it often arrives | What it means in substance | What to hold out for |
|---|---|---|
| “Ninety days, automatically renewing for successive thirty-day periods unless a party gives notice.” | The period extends by inertia. A missed calendar reminder costs a month. | One fixed period expiring by its own terms, any extension requiring your signature. |
| “Commencing on the date Buyer receives complete responses to its diligence request list.” | The buyer controls the start, and restarts it by calling responses incomplete. | Commencing on the date the letter of intent is signed. |
| “Extended day for day by any period of Seller delay.” | The buyer decides what counts as delay. The period becomes elastic. | No tolling, or tolling only for named items ten days late, capped in days. |
| “Buyer may extend for thirty days upon written notice.” | An option granted to the buyer, exercisable for free. | Extension only on a credit-approved lender term sheet, an engaged quality-of-earnings provider, or a draft purchase agreement. |
| Silence on early termination. | The buyer cuts price in week three and you still cannot talk to anyone. | Immediate termination if the buyer reduces price, changes structure, or misses a deliverable date. |
Each item in the right-hand column is dated, verifiable by a third party, and costs the buyer money or credibility. A buyer who will not deliver a lender term sheet to earn two more weeks is telling you something about the financing, and you should hear it while you still have an underbidder.
What happens if you breach exclusivity and sell to someone else?
Breaching a no-shop exposes a seller to a damages claim and, more dangerously, to a request for an injunction that can halt the competing sale. Injunctive relief is discretionary, not automatic. The damages side is usually narrower than the paragraph sounds, but the equitable side is where the deal actually dies.
Under New York law, a party whose exclusive negotiating right is breached generally cannot recover the profits of the deal that was never signed. In Goodstein, a developer holding an exclusive right to negotiate a land disposition agreement with New York City was dedesignated, and sued for the profits the project would have produced. The Court of Appeals held those lost profits too speculative to recover on an agreement to negotiate. What survived was the claim for out-of-pocket sums actually spent.
Case: Goodstein Construction Corp. v. City of New York, 80 N.Y.2d 366 (1992).
Read that as a ceiling on one theory, not a discount. The buyer still recovers what it can prove it spent, and an expense-reimbursement clause or break fee in your letter of intent is a separate term the Goodstein limit does not touch. Cap those clauses. The thin remedy cuts both ways: if the buyer stalls, retrades, and walks, your recovery is equally thin.
Governing law changes the arithmetic. Delaware enforces an express promise to negotiate in good faith and has allowed expectation damages where the trial court found the parties would have reached agreement but for one side’s bad faith. That exposure attaches to an express promise in a binding preliminary agreement, so the recital matters: a letter of intent that is non-binding except for enumerated paragraphs is a different document from one committing both sides to negotiate in good faith. Check what you promised.
Case: SIGA Technologies, Inc. v. PharmAthene, Inc. (Del. 2013); on remand and second appeal (Del. 2015).
The sharper threat is equitable. The Delaware Court of Chancery has granted a temporary restraining order enforcing a no-solicitation provision in a letter of intent, barring the target from soliciting or entertaining third-party offers and from disclosing the letter’s contents. That was a bench ruling on a preliminary record, and such an order turns on a colorable claim, irreparable harm, and the balance of equities. It is discretionary, and it is fast.
Case: Global Asset Capital, LLC v. Rubicon US REIT, Inc., C.A. No. 5071-VCL (Del. Ch. Nov. 16, 2009) (transcript ruling on a temporary restraining order).
The money remedy is thinner than the paragraph sounds. The injunction is not. Bounded damages plus a frozen sale is still a lost deal.
One drafting consequence follows. If the paragraph stipulates that breach causes irreparable harm and consents to injunctive relief without bond, you have pre-written the buyer’s motion. A court is not bound by that stipulation, but it is given weight. Strike it, or at least the waiver of bond.
What if the buyer’s financing is not proven yet?
Exclusivity granted to a buyer with unproven financing is the most expensive paragraph in the letter of intent, because the clock runs on your process while the buyer discovers whether it can pay. The underbidder two points behind on price does not wait politely. Attention moves elsewhere, and the fallback you thought you had cools.
So price the days against how the money actually arrives. If the buyer is using a bank loan guaranteed by the Small Business Administration, the lender is working inside the agency’s standard operating procedures for change-of-ownership loans, which require a business valuation from a qualified source and an independent valuation once the financed intangible portion crosses a stated threshold. As of September 2026, the operative version is SOP 50 10 8, effective June 1, 2025. SOP 50 10 8.1, effective October 1, 2026, adds a lender-ordered quality-of-earnings report for change-of-ownership loans at a business purchase price of $3,000,000 or more. Ask which version governs this file and whether the application date falls past an effective date. A new underwriting deliverable is what a buyer calls a reason to extend.
Guidance: SBA SOP 50 10 8 (effective June 1, 2025); SOP 50 10 8.1 (effective October 1, 2026). Confirm the version governing the file.
These requirements are useful. They create dated events you can hang an extension on: the valuation ordered, the quality-of-earnings provider engaged, the file in credit, the term sheet credit-approved. I ask for the status of the lender’s credit file before agreeing to a single additional day.
What if your company has more than one owner?
A controlling owner who binds the company to exclusivity cuts off every alternative for the minority holders as well, and should expect to explain it later. Signing authority is the first question: the operating agreement, shareholders agreement, or bylaws will say who can commit the company to a binding obligation.
The buyer will ask for evidence of that authority, so handle it before signature. Get the consent or resolution authorizing the letter of intent, and record what the other holders were told and when. What a controlling owner owes the others is not uniform: those duties turn on state law and entity type, and an operating agreement can narrow or even eliminate them by express language. Whether a minority holder can demand the letter itself also varies. Check both.
What should you do before you sign the exclusivity paragraph?
The work before signing is short and concrete: cap the days, kill the automatic renewal, tie each extension to a dated buyer deliverable, and write down every party you must now go quiet on. That last list is the one nobody makes, and it is the one that turns a courtesy reply into a technical breach.
- Fix the dates. The period starts on the signature date and ends on a stated calendar date. Delete any renewal that operates without your signature.
- Buy back the extensions. Name the deliverable: a credit-approved lender term sheet, an engaged quality-of-earnings provider, a draft purchase agreement.
- Add the release trigger. Exclusivity ends if price or structure moves against you, or a deliverable date is missed.
- Get the inbound carve-out. You may receive unsolicited approaches and reply only that you are subject to exclusivity.
- Narrow any notice duty. The fact of an approach, not the identity or the terms.
- Cut the pre-written motion. Strike the irreparable-harm stipulation and the waiver of bond.
- Check the governing law clause. It moves the damages analysis, and it is negotiable.
- Build the go-quiet list. Every party under a nondisclosure agreement, everyone with data room credentials, every strategic party you spoke with informally, and your broker’s active buyer log.
- Confirm authority. The consent or resolution, and a note of what the other owners were told.
Do this and exclusivity becomes what it should be: a fixed window in which one buyer proves it can perform. Skip it and the paragraph becomes a standing option on your company, renewing quietly, held by someone else.
Cap the days. Make every extra week cost the buyer a document with a date on it. Then write down who you can no longer call.
Keep reading
The Seller’s LibraryYour letter of intent says it is non-binding. Several of its paragraphs are not.The Seller’s LibraryWhat still binds you after the deal falls apartThe Buyer’s LibraryParts of your letter of intent bind you at signature.
Have a lawyer read it before you sign.
A sale is decided in a handful of documents you sign exactly once — the letter of intent, the working capital definition, the indemnity. There is no rush. When you want those read properly, we are here.
Before founding Prencipe International, Joe practiced at the top law firms in the world, including Freshfields Bruckhaus Deringer, Baker McKenzie, Morgan Lewis & Bockius, and served at the U.S. Securities and Exchange Commission. He has spent his career on high-stakes disputes and transactions for businesses that cannot afford to lose. He represents owners selling the company they spent a career building -- reading the letter of intent before it is signed, and the purchase agreement while there is still room to change it.
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