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Understanding exclusivity agreements in commercial property transactions

Exclusivity agreements, also known as ‘lock-out’ agreements play a key part in commercial property lease transactions.

These legal documents act as safeguards and strategic tools for both landlords and tenants, and understanding their significance is essential for all parties involved in such transactions.

What are exclusivity agreements?

Exclusivity agreements are contracts where a commercial landlord agrees not to engage in lease negotiations with other potential business tenants for the same commercial space. The restriction is applied for a specified period, also known as the exclusivity period.

Such agreements are typically formed when both the commercial property landlord and tenant are seriously considering entering a lease.

This exclusivity period allows for the necessary investigations and preparations required to finalise the commercial lease.

It is an arrangement built on mutual trust and good faith between both parties, ensuring a focused and committed negotiation process.

Why are exclusivity agreements important?

The main advantage of an exclusivity agreement for tenants is the assurance and space it provides. Knowing that the property will not be leased to someone else during the agreed period, the potential tenant can meticulously organise their finances and perform necessary property checks.

For landlords, while it may seem like a limitation, these agreements can often lead to more committed and serious negotiations, as they indicate a tenant’s genuine interest in the property.

Potential challenges

One of the key challenges in exclusivity agreements is determining the appropriate length of the exclusivity period.

Too short, and the potential tenant may not have enough time to complete all the necessary procedures and too long, the landlord might miss out on other potential opportunities.

How can a commercial property solicitor help?

A commercial property solicitor plays an important role in these transactions and can help with a variety of components.

Drafting and reviewing agreements: Solicitors can draft exclusivity agreements that cater to the specific needs of the landlord and tenant, ensuring that the terms are clear, fair and enforceable.
Negotiating terms: They can negotiate the terms of the exclusivity agreement, including the duration of the exclusivity period and any conditions to be met by both parties.
Guidance on due diligence: Solicitors provide invaluable guidance on the due diligence process, ensuring that the commercial landlord utilises the exclusivity period effectively to assess the property’s value and potential risks.
Legal advice and risk assessment: They offer legal advice on the implications of the exclusivity agreement and assess any risks involved, helping clients make informed decisions.

Do you need guidance on drafting an exclusivity agreement? Get in touch with our expert team for advice.

Carl Jones

Director - Head of Commercial Department

I qualified as a Solicitor having completed my training with Mander Hadley in 1992 and am a member of the Law Society Property Section and The Warwickshire Law Society.