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The Purpose of Exclusivity Agreements

Jun 23, 2008
Exclusivity agreements, because they are present in a number of different areas of the law, come in a variety of forms and are designed to meet a range of goals. The overriding purpose of each exclusivity agreement is, however, to define a relationship in which (generally) two parties agree to deal only with one another, to the exclusion of third parties. The duration of the agreement; whether it is bilateral or unilateral in its rights and restrictions; if it includes only two parties or perhaps more-all such matters are dependent to a large degree on the area of law from which the agreement springs.Today, one is most apt to find exclusivity agreements in three different areas of the law-in the commercial world, in mergers and acquisitions, and in real estate.

When two commercial parties deal with one another, they may sign an exclusivity agreement to solidify the economic relationship between them and to prevent third parties from interfering. The nature of this sort of exclusivity agreement-and the desire to build stability into the relationship-means that such agreements can endure months or years-until the bargaining power of one or the other party materially changes. Often, the relationship is one between buyer and seller, and the seller obliges the buyer to purchase its goods only from this seller and not from the seller's competitors. An example of this situation would be Del Monte obliging Whole Foods grocery stores to buy all of its bananas only from Del Monte and not from Chiquita or another grower. Certainly, the opposite situation can occur, as well: Whole Foods could lock in Del Monte such that the latter could sell its bananas only to the former. This scenario is much less common, however.

Two companies contemplating a merger sign an exclusivity agreement to prevent one or both of the parties from seeking other third party targets or partners. Shorter in length, these agreements keep the parties' attention focused during the discussion phase. Inherent to these agreements are certain provisions, such as articles on access, no agreement, termination, and changes. The parties allow one another access to files and pertinent data. The parties are of course bound by confidentiality provisions, especially if the deal is not consummated. Just such a scenario is dealt with in the "no agreement" provision, which states that even though the parties are dealing exclusively with one another, they under no duty to conclude a deal. They can walk away, in other words. A termination provision talks about the natural expiration of the agreement or early termination by one of the parties. And finally, certain provisions in the agreement may well forbid parties from making material changes to the way the business is run during the exclusion period.

Realtors use exclusivity agreements-called exclusive listing agreements-throughout their business. When a homeowner signs an exclusivity agreement, he is agreeing to use only one Realtor-or that realtor's company-to sell his home, including listing it, showing it, and closing the sale on it. No other Realtor may interfere with the transaction, and the homeowner is "locked in," as they say. The homeowner, for his part, receives the benefit from the realtor's resources, such as the latter's business acumen or large register of buyers. The homeowner is free at any time to cancel the exclusive listing agreement. However, to do so can carry a penalty. If the home is sold to a buyer within (usually) 30 days of the agreement's cancellation and the buyer was brought in by the Realtor, then the Realtor in question is still entitled to collect a commission on the sale.
About the Author
Mark Warner is a Legal Research Analyst for RealDealDocs.com. RealDealDocs gives you insider access to millions of legal documents drafted by the top law firms in the US. Search over 10 million Documents, Clauses, and Legal Agreements for Free at http://www.RealDealDocs.com
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