I Signed an LOI to Buy a Business — Is My Offer Being Used to Bid Up the Price?
You found the business. You did your preliminary review. You submitted a letter of intent, the seller countered, you agreed on price and structure, and both parties signed. Now due diligence has started — and something feels off. The seller seems less engaged than expected. A broker mentioned another interested party. You are starting to wonder: is my LOI being used to flush out a higher offer from someone else?
If your LOI does not contain a binding exclusivity provision, the answer may be yes — and there may not be much you can do about it after the fact. Understanding why requires understanding what an LOI actually is, and what it does and does not obligate the seller to do.
What an LOI Is — and What It Isn’t
A letter of intent is a preliminary document that captures the key business terms of a proposed acquisition: purchase price, deal structure (asset sale or equity sale), key conditions to closing, anticipated timeline, and the general framework for how the deal will work. Most LOIs are expressly non-binding on the substantive deal terms — meaning neither party is legally obligated to complete the transaction based on what the LOI says.
This non-binding nature is often misunderstood by buyers. Signing an LOI does not lock the seller in. Unless the LOI contains specific binding provisions — most importantly, an exclusivity clause — the seller remains free to continue marketing the business, receive competing offers, and ultimately sell to someone else at any point before a definitive purchase agreement is signed.
The Exclusivity Clause: Your Most Important Protection
An exclusivity clause — sometimes called a no-shop or standstill provision — is the provision that actually protects you as a buyer during the period between LOI signing and definitive agreement execution. A properly drafted exclusivity clause requires the seller to negotiate exclusively with you for a defined period, typically 30 to 90 days depending on the complexity of the transaction and the expected duration of due diligence.
During the exclusivity period, the seller may not: solicit offers from other potential buyers, encourage or facilitate inquiries from competing buyers, share confidential business information with any third party for acquisition purposes, or enter into any letter of intent, term sheet, or other agreement with a competing buyer.
Exclusivity provisions in LOIs are generally enforceable in New York and New Jersey as independent binding obligations, even when the rest of the LOI is non-binding. The key is that the exclusivity provision must be clear, specific, and expressly identified as binding. Vague language about the parties’ intent to negotiate in good faith is not an exclusivity clause.
What to Do If You Suspect Your LOI Is Being Shopped
If you are already in this situation — the LOI is signed, due diligence has started, and you suspect the seller is using your offer to solicit competing bids — your options depend on what the LOI says.
If your LOI contains a binding exclusivity clause: You have a contractual basis to demand that the seller comply with the exclusivity obligation and cease any competing negotiations. A formal written demand from a business attorney puts the seller on notice that a breach of the exclusivity provision will have consequences — including potential claims for damages, including the transaction costs you have incurred in reliance on the LOI.
If your LOI does not contain an exclusivity clause: Your options are more limited. The seller has not technically breached any obligation. You can attempt to negotiate an exclusivity provision now — though a seller who is actively shopping your offer has little incentive to agree — or you can accelerate your due diligence and push toward a signed definitive agreement as quickly as possible, since a signed purchase agreement provides far more protection than an LOI.
Other Protective LOI Provisions
Beyond exclusivity, a well-drafted LOI should also include a binding confidentiality provision requiring the seller not to disclose the terms of your offer to competing buyers or the market generally, a cost allocation provision addressing who bears due diligence costs if the deal does not close, a clear statement of which provisions are binding and which are not, and a governing law and dispute resolution provision specifying New Jersey or New York law and how disputes about the LOI itself will be resolved.
At Russo Law LLC, we advise buyers and sellers on LOI drafting and negotiation, due diligence, and definitive purchase agreement preparation for business acquisitions in New Jersey and New York. If you have concerns about an existing LOI or want to make sure your next LOI actually protects you, contact us to discuss your situation.
Disclaimer
The legal and business issues discussed in this post vary depending on the specific facts and circumstances of each situation. The legal and business issues discussed in this post vary depending on the specific facts and circumstances of each situation. This corporate lawyer blog post is for informational purposes only and does not constitute legal advice. It is not an offer for Russo Law LLC to represent any party, nor does it create an attorney-client relationship. No action or inaction should be taken based on the information provided without seeking professional legal counsel. This post is intended for businesses in New York and New Jersey. It may not reflect laws in other jurisdictions.
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