Encyclopedia
Non-competition agreement
A seller's promise not to compete with a business they sold.
For example: Hypothetical: a café seller agrees not to open nearby for a period. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you buy a bakery and the seller agrees not to open a competing bakery nearby for a set time. That helps protect the goodwill you paid for.
What I’d tell a friend
A non-competition clause can protect what you buy, but it must be reasonable to be enforceable. Check with a BC lawyer.
Why it matters to you
Buyers need it to protect the goodwill they're paying for, and sellers should expect to be asked. It has to be reasonable in time, area and scope, or a court may not enforce it, which leaves the buyer exposed.
How to use it in your deal
Buyers should ask for a non-compete tied to the sale, limited to what's reasonable in time, area and type of business; BC courts are more willing to enforce reasonable ones in business sales than in employment. Sellers should make sure the limits fit their plans, especially if they want to keep working in the industry. Get tax advice, since amounts paid for a non-compete can have tax effects.
Landlords may see exclusive-use requests that serve a similar purpose. Write in a non-solicit for staff and customers too, since that's often what really protects the business, and decide what happens if the seller breaches, such as an injunction or repayment.
Mistakes I see
Broad terms a court won't enforce, like all of BC for ten years for a single café. Forgetting tax consequences. Sellers signing something that blocks their next job. Buyers forgetting to tie the non-compete to the seller's spouse or holding company when they're also involved in the business.
In BC and Vancouver
BC courts enforce reasonable restrictive covenants in business sales. Federal tax rules apply to payments for them.
Official sources: CanLII (court decisions) · Income Tax Act (Justice Laws)
What it is
A non-competition agreement is a promise not to compete with a business for a period and in an area.
It is common in business sales and some leases.
What to know
Courts may not enforce terms that are too broad in time, area or scope.
Get a BC lawyer to draft or review the wording, especially the area, time and activities covered.
Questions to ask before you sign
- How long and how far should it reach?
- What activities are covered?
- Is it reasonable?
- How is it taxed?
Keep reading
Related terms: Goodwill, Asset sale, Share sale
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.