Exclusivity/ Lock Out Agreement
A lock-out agreement (also called an exclusivity agreement) is a basically negative agreement. Underwhicha seller is required not to negotiate with the third parties during a fixed lockout period. A seller can only deal with the buyer during such period. The dealings can be in terms of supply of goods, services, etc. While such agreements don’t guarantee that a sale contract will be entered into, they can at least provide buyers with a fixed period of exclusivity.
FEATURES OF LOCK- OUT/ EXCLUSIVITY:
1.CHANGE OF HEART–No one likes to waste time and costs by being locked into a pre-contract agreement with a party which no more any interest in the transaction, so lock-out agreements mostly contain a covenant in which any of the partycan notify the other if they decide to cancel the deal during the period of exclusivity.
2.CONFIDENTIALITY –Generally a confidentiality clause in a lock-out agreement might be a useful way of protecting both parties while they decide whether to exchange contracts.
3.GOOD FAITH–A lockout agreement might well contain a clause stating that the parties agree to act towards each other with the utmost good faith in connection with the agreement and the transaction.
4.RESCISSION AND PAYMENT OF FEES – There is usually a right for either party to withdraw if it reasonably considers that the other party has breached its obligations in the contract, and this is sometimes accompanied by a requirement for the party in breach to pay the other party's costs..
5.NEGATIVE IN NATURE – The lock- out agreement should restrict the seller from contracting with any other third party within that lock out period either.
6.TIME PERIOD –under lock-out agreement time period of the lock out should be fixed. It can be for 2 months or it can be for 6 months but it should be definite.
7.PAYMENT – It must be made for the agreement or the agreement must be executed as a deed. However, an obligation on the buyer to incur costs (for example, legal costs in instructing its solicitors to carry out due diligence or surveyors’ costs in carrying out a survey) can amount to “consideration”.