Exclusivity under LOI, but still able to advertise?

October 29, 2023

by a professional from University of North Carolina at Chapel Hill in Atlanta, GA, USA

On one LOI that I'm negotiating, the broker is advocating for adding a clause to the exclusivity section which allows him to continue to advertise the deal and take back-up offers so long as he doesn't communicate those with the seller. They would just be in reserve if our deal falls through. Is this normal?

I get the desire of the broker to protect their process and minimize dead time from a lost deal, but I also don't want another buyer to swoop in during what is supposed to be an exclusive period. Maybe I can protect so that, if the seller walks but goes under LOI with someone else within 60 days, they must cover my deal expenses?

Any input appreciated. Thanks!

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Reply by an intermediary
from University of Missouri in Kansas City, MO, USA

Daniel, there are a few things that aren't known in the scenario you described. While I'm not personally in favor of the approach this broker would like to take, it depends to a degree on the circumstances of this deal. Among those variables are his degree of confidence in your ability to get the deal financed including your equity level investment. Further, it involves any other deal terms or contingencies that you may have included in the LOI. These factors could reduce his confidence in your ability to close and motivate him to "hedge his bets" with potential back up buyers. In many cases, a broker or investment banker will have multiple IOIs or LOIs on a deal. The seller picks a "winner" to go into exclusivity with, but the broker keeps the other bidders warm on a back burner in case the chosen LOI does fall through. Also, from a position of strength in negotiations, this broker has told you that he's taking back up offers to hold in confidence from the seller, but YOU know and that's a factor in your ability to negotiate any changes in price or terms based on what you find in post LOI due diligence from a position of strength. Best wishes in completion of your deal.

Reply by an intermediary
from The University of Chicago in United States

I would generally advise against it. The core idea of exclusivity is that you've got the seller's full attention. If another deal is simmering in the background, it jeopardizes that. A few options instead: 1) Ask for a tighter window for exclusivity, say 30 days. That's long enough to do diligence but limits risk of alternatives. 2) Suggest a mutual termination payment if either party walks before exclusivity ends. That incentive aligns everyone. 3) Negotiate visibility into backup offers - names concealed but you know $ terms. That reassures without fully opening the process back up. The key is finding a compromise that lets the broker mitigate risk too in case things fall through. But your deal focus should remain sole and undivided throughout due diligence. Pick a clear next ask and see if they'll meet you halfway.

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