The Purpose of Exclusivity Agreements

Website design By BotEap.comExclusivity agreements, because they are present in several different areas of the law, come in a variety of forms and are designed to meet a variety of objectives. However, the primary purpose of each exclusivity agreement is to define a relationship in which (generally) two parties agree to deal only with each other, to the exclusion of third parties. Duration of the contract; whether it is bilateral or unilateral in its rights and restrictions; whether it includes only two parties or perhaps more – all these questions depend very much on the area of ​​law from which the agreement arises. Today, you are most likely to find exclusivity agreements in three different areas of the law – in the commercial world, in mergers and acquisitions, and in real estate.

Website design By BotEap.comWhen two business parties deal with each other, they can sign an exclusivity agreement to solidify the economic relationship between them and avoid interference from third parties. The nature of this type of exclusivity agreement, and the desire to create stability in the relationship, means that such agreements can last for months or years, until the bargaining power of one or the other materially changes. Often the relationship is between buyer and seller, with the seller forcing the buyer to purchase the goods from him only from this seller and not from the seller’s competitors. An example of this situation would be Del Monte forcing Whole Foods grocery stores to purchase all of their bananas only from Del Monte and not from Chiquita or another grower. Certainly, the opposite situation could also occur: Whole Foods could block Del Monte so that the latter could sell its bananas only to the former. However, this scenario is much less common.

Website design By BotEap.comTwo companies contemplating a merger enter into an exclusivity agreement to prevent one or both parties from seeking other third-party targets or partners. Of shorter duration, these agreements keep the parties’ attention focused during the discussion phase. Inherent in these agreements are certain provisions, such as articles on access, no agreement, termination and changes. The parties allow each other mutual access to relevant files and data. Of course, the parties are bound by confidentiality provisions, especially if the deal is not consummated. Precisely that scenario is addressed in the “no deal” provision, which states that even if the parties deal exclusively with each other, they are not required to conclude a deal. They can go, in other words. A termination clause speaks of the natural termination of the contract or early termination by one of the parties. And finally, certain provisions of the agreement may prohibit the parties from making material changes to the way the company is run during the exclusion period.

Website design By BotEap.comReal estate agents use exclusivity agreements, called exclusive listing agreements, throughout their business. When a homeowner signs an exclusive agreement, they agree to use only one real estate agent, or that real estate agent’s company, to sell their home, including listing, showing, and closing the sale. No other real estate agent can interfere with the transaction, and the homeowner is “trapped,” as they say. The owner, for his part, receives the benefit of the resources of the real estate agent, such as the latter’s commercial acumen or the large list of buyers. The owner is free at any time to cancel the exclusive listing agreement. However, doing so may carry a penalty. If the house is sold to a buyer within (usually) 30 days of the deal being canceled and the real estate agent brought the buyer in, then the real estate agent in question is still entitled to take a commission on the sale .

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