Lockout Agreements: Securing Exclusive Negotiations
What Is a Lockout Agreement?
A lockout agreement (also called an exclusivity agreement or lock-out period) prevents one party — typically a seller — from negotiating with, soliciting offers from, or entering into agreements with third parties for a set period. This gives the other party an exclusive window to finalize a deal without competitive pressure.
Lockout agreements are common in real estate transactions, business acquisitions, and commercial dealings where a buyer needs time to conduct due diligence.
How Lockout Agreements Work
- The buyer and seller agree to an exclusivity period (commonly 30-90 days)
- During this period, the seller cannot market the property or business to other potential buyers
- The buyer uses the time to complete due diligence, arrange financing, and negotiate final terms
- If the lockout period expires without a deal, the seller is free to negotiate with others
Real Estate vs. M&A Context
In real estate:
- Often used in commercial property transactions where due diligence is extensive
- The buyer may pay consideration (a fee or deposit) for the exclusivity period
- Under English law, lockout agreements are enforceable; lock-in agreements to negotiate in good faith generally are not
In M&A:
- Called exclusivity or no-shop agreements
- Typically granted after a letter of intent is signed
- The buyer expects to invest significant time and money in due diligence
What to Watch For
- Duration — Too short may not allow adequate diligence; too long may disadvantage the seller
- Consideration — Whether the buyer pays anything for the exclusivity period
- Remedies for breach — What happens if the seller entertains other offers during the lockout
- Buyer obligations — Whether the buyer must proceed in good faith and with reasonable speed
- Automatic extensions — Watch for provisions that extend the lockout period without seller consent
When to Consult a Lawyer
Consider having a lawyer draft or review a lockout agreement, especially regarding enforceability requirements in your jurisdiction and appropriate remedies for breach.
This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.