Lisa Hybbinette on exclusivity

Insights|April 16, 2024

We asked our people to share their thoughts about legal terms or concepts that they find useful, necessary, challenging, fun or annoying. In this article, Partner Lisa Hybbinette reflects over exclusivity agreements. 

One of Lisa Hybbinette’s favorite legal concepts is exclusivity

The concept of exclusion and exclusivity has for a long time been used to increase prices on luxury goods, such as cars and luxury brands. We tend to value exclusive goods enough to pay a high premium on these goods, and the reason seems to reflect a deep-rooted aspect of human nature: we value things higher if other people want them but can’t have them.

When the concept of exclusivity is used in a legal context, it is often through an exclusivity agreement between the seller of a company or asset and a prospective buyer, to ensure that the seller takes the asset of the market and exclusively negotiates with the prospective buyer for an agreed period of time. The aim with the exclusivity is to protect the prospective buyer against the risk that another party will outbid it, by granting the prospective buyer a period of time which the seller will exclusively negotiate with the potential buyer and no other interested parties, in order for the prospective buyer to feel more comfortable spending time and money on due diligence. In my world, working with real estate transactions, the seller will normally grant the highest bidder exclusivity for a certain period of time through a letter of intent . The majority of letter of intents are non-binding agreements, except when it comes to the exclusivity and confidentiality. 

The exclusivity clause can be more or less extensive. Sometimes, the seller is simply prohibited from entering into negotiations with another party during the exclusivity period, while some more buyer-friendly exclusivity clauses will also prohibit the seller from initiating or even considering any other bids, providing information to any other party regarding the company or the property for the purpose of selling the asset or market the asset. 

Normally, there is also a way for the seller to terminate the exclusivity in advance, for example if the buyer notifies the seller of red-flags identified during the due diligence which may have a negative impact on the purchase price and the parties are unable to resolve the issues. More seller-friendly exclusivity clauses may also include a termination right for the seller in case the buyer does not meet certain milestones in the overall time schedule of the transaction. 

So – why is exclusivity my favorite legal term? A couple of years ago, when the market was booming and deal certainty high, you almost always knew for certain that there would be a deal where there was exclusivity. In the current market, deal certainty is a bit lower but exclusivity still means there is a good chance of the deal happening. Perhaps it is because I am a transactional real estate lawyer that I like the term so much. Or simply, going back to the psychological aspect of exclusivity, perhaps my desire for exclusivity is just a reflection of others wanting something that they can’t currently have.