Buying or selling a business in London, Ontario is rarely only about price. The real value sits in the continuity of customers, relationships, data, and operational know-how. A non-compete clause, properly structured, is one of the few tools that directly protects that value after closing. Done poorly, it becomes a blunt instrument that scares off good buyers, invites legal risk, or proves unenforceable when you need it most. I have sat across the table for both sides, and the difference between a tight, sensible non-compete and a bloated one often determines whether a deal makes it to closing at all.
London’s market is mature and diverse. Manufacturing suppliers along the 401 corridor, healthcare services close to the university and hospitals, trades and home services in growing suburbs, independent retailers and hospitality downtown, specialized tech and professional firms spread across business parks. Across these sectors, the core concerns are similar: will the seller open up down the street and siphon off clients, or will the agreement hold long enough for the buyer to consolidate relationships and build on the foundation they just bought?
This is where the law meets commercial judgment. Ontario courts will not rubber-stamp every non-compete. They will, however, enforce narrowly tailored restrictions that protect legitimate business interests. The art lies in knowing what is “reasonable,” how to draft it, and when to use a non-solicit or confidentiality promise instead.
What a non-compete actually protects
A non-compete clause prevents a seller from operating a competing business within a defined geography and for a defined time after the sale. At its best, it protects the goodwill the buyer is purchasing, which includes recurring revenues, brand reputation, and the trust bundled into email lists, phone numbers, and staff know-how. If you pay a multiple for a stable service business in London, you are not just buying tools and a lease, you are buying the right to earn from that goodwill free from immediate attack by the person who created it.
I saw a service company sale where the buyer paid a 3.25x multiple on normalized earnings. Without a non-compete, the seller could have rented a nearby unit, emailed past clients from memory, and undercut on price for a year. The multiple would never have made sense. The deal would https://pastelink.net/9k8ospwz not have closed. That is the reality: the non-compete underwrites the purchase price.
Ontario’s legal landscape in plain language
Ontario courts start with skepticism toward restraints of trade, then ask whether the clause is reasonable in time, geography, and scope of activities. There is no magic formula, but patterns emerge.
Reasonable time. For small to mid-sized sales around London, one to three years is typical. For niche industries with deep client stickiness and higher multiples, three to five years can be justified, particularly in asset purchases where goodwill is the centerpiece. Going beyond five years is rare and demands strong rationale.
Reasonable geography. A citywide or countywide restriction can make sense if the business draws customers from that footprint. If the business sells primarily in South London, a Southwestern Ontario restriction will be hard to defend unless the business truly serves that entire region. For e‑commerce or SaaS, geography can be behavioral instead of spatial, focusing on customer segments rather than maps.
Reasonable scope. Courts dislike vague catchalls like “any business competitive with Buyer.” Define the activities: “residential HVAC installation and maintenance,” “retail specialty bakery,” “staffing services in healthcare support,” “commercial cleaning for offices over 5,000 square feet.” If the seller ran a diversified operation, consider separate scopes per line with different durations.
Blue‑pencil reality. Ontario courts tend not to rewrite a flawed clause to make it reasonable. If you draft it too broadly, you risk losing the whole restriction. Precision upfront matters more than bravado.
Sale of business versus employment. Non-compete clauses are more acceptable in a business sale than in employment contracts because the seller receives consideration for goodwill. Still, judges will not enforce a heavy-handed restraint simply because money changed hands. The terms must fit the facts.
When a non-solicit is better than a non-compete
Many deals in London do not need a full non-compete. A well-written non-solicitation and confidentiality package often achieves the same outcome without overreaching. If the seller wants to stay in the industry but pivot to a different niche, or if the buyer primarily fears poaching of customers and staff, a non-solicit gets you there with lower legal risk. It bars the seller from actively approaching past customers or employees for a period, and it pairs cleanly with a strict confidentiality covenant over pricing, methods, and data.
In a professional services sale near Richmond Row, a buyer kept the seller on as a consultant for a year. The non-solicit prevented poaching, and the confidentiality clause locked down the CRM and pricing strategy. There was no non-compete. The seller remained in the field, but not as a direct threat. The buyer retained 90 percent of the recurring revenue after twelve months. That is the kind of surgical approach that works in relationship-heavy businesses.
Tailoring for London, Ontario realities
Local dynamics dictate what is “reasonable.” Take a few examples.
Home services and trades. Many of these businesses in London grow by postcode saturation and referral. A two to three-year citywide restriction tied to specific services is often appropriate, with carve-outs for rural jobs outside Middlesex County if the business never served them. If the brand trades heavily on the owner’s personal name, extend the non-solicit and brand-use restrictions to cover the name itself.
Retail and hospitality. Geography matters more than time. A three-kilometre radius from the current location can be enough if most traffic is hyperlocal. If the business planned expansions, you can specify additional radii around disclosed target sites.
B2B professional services. Clients are relationship-driven and portable. A robust non-solicit with a longer tail, say three to five years for named accounts, can outperform a broad non-compete. Add a clause prohibiting work for listed key clients even if the client initiates contact, with a limited exception for strictly personal referrals unrelated to the old business.
Manufacturing and distribution. Scope and confidentiality carry more weight than geography. Preventing competition in a specific product class and channel can be more enforceable than attempting to block activity across multiple provinces. Tie the restriction to products sold in the last 24 months pre-closing and protect bill of materials, vendor pricing, and process know-how.
Tech, e‑commerce, and data-driven models. Define competition by customer type, functionality, and monetization model rather than a city boundary. Courts want concrete fences. “Subscription software for dental clinics providing scheduling and billing” is a fence. “Any software” is not.
Anatomy of a practical clause
The cleanest clauses read like a short brief: clear, bounded, and testable. Here is how I build them into asset or share purchase agreements without inviting a fight at closing.
Time. Two years is the default for many London transactions. Add a reasonable tail to non-solicit covenants if customer lifecycles are long, such as three years for maintenance contracts.
Geography. Use postal codes, municipal boundaries, or radii from existing locations. If you need reach beyond London, define specific cities or counties. Avoid phrases like “anywhere the buyer operates” unless you list those areas.
Scope. Describe the activities by service and customer segment. If the seller ran multiple lines, treat them separately and avoid collateral damage to unrelated work.
Carve-outs. Let the seller invest passively below a threshold, typically up to 5 percent in public companies. Permit non-competitive consulting with buyer consent. Allow continued operation of any excluded divisions the buyer intentionally did not purchase, with tight non-solicit and confidentiality around the purchased business.
Remedies. Injunctive relief clauses matter. Money damages may not restore a poached client roster. Give the buyer the right to seek an injunction without proving irreparable harm, to the extent permitted by law.
Disclosure alignment. Attach a schedule listing key customers, employees, and suppliers. This makes the non-solicit and confidentiality practical rather than theoretical. It also heads off arguments later about who counted as a “client.”
Where deals go sideways
Overbroad grab bags. A five-year Canada-wide ban for a neighborhood service business looks intimidating, not protective. Buyers lose credibility and sellers dig in. Redraft to a two-year London and area restriction with a defined service scope, and the seller may accept with minimal pushback.
Ignoring the seller’s next act. If the seller wants to teach, build software for a different vertical, or run a related but non-overlapping shop in Sarnia, acknowledging those plans early helps sculpt the clause. Otherwise you discover the conflict three days before closing and lose momentum.
Employment after closing. When the seller remains as an employee or consultant, you must stack the covenants carefully. Employment non-competes face higher scrutiny. The sale-of-business restrictions should govern post-termination behavior, with the employment agreement deferring to them to avoid contradictions.
M&A fatigue. After weeks of due diligence, parties get deal-tired and wave through vague language. Six months later, a single email to a past client triggers a dispute because the non-solicit didn’t define “solicit,” “advertise,” or “respond to inbound inquiries.” Better to define these upfront. For example, general advertising not targeted at past clients is allowed, but direct outreach by phone, email, or private messaging is prohibited.
How non-competes shape price and terms
Serious buyers in London, including those scanning businesses for sale London Ontario through public listings or off market business for sale channels, quietly price the non-compete’s strength. A narrow, signed, and enforceable covenant supports a richer multiple and lower earnout risk. A mushy clause means more money shifts into conditional payments like holdbacks and earnouts, or the buyer demands a price haircut to offset exposure.
Brokers see this pattern often. The best business brokers London Ontario expectations early by presenting a draft covenant with the marketing package. When we marketed a small business for sale London with strong retention KPIs and a clear two-year London-only restriction, we received offers within a tight band. In contrast, a similar business with a contested non-compete saw offers differ by 20 percent, reflecting perceived risk.
If you plan to sell a business London Ontario within 12 to 24 months, bake the future covenant into your planning. Reduce the owner’s public profile, redirect key relationships to senior staff, and lock down data hygiene. That way, the non-compete looks like a logical capstone rather than an aggressive surprise. On the buy side, if you plan to buy a business in London Ontario, ask for sample covenants up front. The sellers who respond clearly tend to be easier to transact with.
Earnouts, holdbacks, and the enforcement incentive
A non-compete without leverage is a wish. Tie a portion of the price to compliance. Many London deals use a 10 to 20 percent holdback for 12 to 24 months. If a breach occurs and a court acknowledges it, the buyer can offset damages against the holdback. For larger deals, an earnout that vests only if revenue retention meets targets aligns interests and makes the seller your ally in protecting goodwill. That structure takes pressure off the raw restrictiveness of the clause itself.
Practical negotiation strategies that avoid trench warfare
There is a rhythm to getting non-competes agreed without poisoning the well.
Define the business in numbers. Instead of debating theory, show revenue by postal code, average customer tenure, and the percentage of sales from recurring vs. project work. The data supports the time and geography you propose.
Offer tailored carve-outs. If the seller has a longstanding hobby business or plans to relocate to another city, document those exceptions with precision. Narrow carve-outs cost little and buy goodwill.
Trade time for scope. If the seller balks at three years, keep the two-year non-compete but extend a non-solicit on named accounts to three years. Or allow the seller to operate in a non-overlapping customer segment immediately, with the broader market restricted for the shorter period.
Make enforcement predictable. Add a notice and cure window for accidental breaches, like an automated newsletter that included a past client. Reserve immediate remedies for intentional poaching or targeted campaigns. Reasonableness here avoids bad blood over minor mistakes.
Off-market, brokers, and smarter deal flow
Non-compete discipline often shows up earliest in off‑market conversations. Owners who prepare a year out, sometimes with guidance from local advisors or firms like business brokers London Ontario, shape their succession plan around a realistic covenant. Buyers who prefer off market business for sale opportunities frequently accept stronger covenants in exchange for less competition and better access during diligence.
If you are scanning listings for companies for sale London or businesses for sale London Ontario, pay attention to how sellers talk about their future plans. Vague answers on “what’s next” usually foreshadow difficult negotiations on covenants. If you prefer a guided process, a seasoned business broker London Ontario can set the right frame from the first call, including realistic non-compete and non-solicit terms that the market will accept.
Real examples from the London area
Family HVAC contractor. Buyer paid 3.1x SDE. Non-compete for two years within London and adjacent communities, limited to residential install and maintenance. Seller allowed to do light commercial work outside the city after 12 months with written consent. Non-solicit on named clients for three years. Outcome: 92 percent customer retention at 18 months, seller consulted part-time on complex installs, no disputes.
Boutique bakery with a strong Instagram following. Instead of a three-year citywide non-compete, the parties agreed to a 1.5‑kilometre radius for two years. The seller relocated to a neighboring town after a year and launched a different concept with sourdough retail only. The covenant allowed it, and the buyer kept the core catering accounts. The narrower geography fit the hyperlocal nature of the business.
Specialty industrial distributor. Rather than a geographic ban, the clause prohibited selling specific product lines to defined industrial segments for three years across Ontario. Confidentiality was tight. The seller joined an unrelated equipment firm after six months, well outside the defined scope. Buyer grew 15 percent year one. The precision in scope avoided a needless lawsuit.
Definitions that save headaches
If you only remember one drafting detail, make it definitions. Disputes collapse when the contract says exactly what ordinary people think the words mean.
Compete. Define it as selling or providing the listed services or products to the defined customer types for remuneration. Exclude passive investments and non-operational roles below a share threshold.
Solicit. Spell out direct outreach by any targeted means, including email, phone, messaging, or in‑person contact initiated by the seller. Address inbound inquiries: either forbid accepting work from named clients or allow it with a referral fee to the buyer for a set period.
Confidential information. List categories such as client lists, pricing, vendor terms, methods, and code or SOPs. Exclude information that becomes public through no fault of the seller or that the seller can prove they knew before the transaction independent of the business. These carve-outs keep the clause credible.
Client. Tie it to the last 12 to 24 months, by invoice date, and attach a schedule for key accounts. That snapshot aligns with how judges view “goodwill purchased.”
Financing and lender expectations
If you need bank financing to buy a business in London or through programs that look at cash flow coverage, expect the lender to review your non-compete. More than once, a credit officer has conditioned approval on tuning the covenant to match the pro forma. If the model assumes 85 percent customer retention, the lender wants to see a non-solicit that clearly prevents poaching for at least 24 months. Relying on “trust” without enforceable guardrails will not satisfy underwriting.
What happens when the seller breaches
The first step is often a letter before action, not an immediate lawsuit. Attach screenshots, dates, and evidence of outreach. Ask for a signed undertaking to cease. Escalate if the harm continues. Courts in Ontario can grant interlocutory injunctions restraining further breaches if you show a serious issue, irreparable harm, and balance of convenience in your favor. This is where tight drafting pays off. If the clause is overbroad, you may struggle on the first prong. If it is crisp, and your evidence is strong, a judge is more likely to stop the behavior quickly.
A smart practical safeguard is to track customer communications for the first year post‑closing. CRMs with change logs, service call records, and tagged inbound inquiries help you prove causation. If a past client returns through your new marketing, fine. If they reply to a seller’s “checking in” message, that is different.
The human factor that keeps deals healthy
The best non-competes are never used. That is not luck. It happens when both sides leave the table with a shared understanding of what is off-limits and why. I encourage sellers to articulate their next chapter early, and I encourage buyers to acknowledge it with measured carve-outs. That transparency produces stronger offers and reduces legal spend.
For owners weighing whether to sell a business London Ontario within the next couple of years, get advice now, not at LOI stage. You will align your operations, branding, and leadership to reduce personal dependence and make a lighter covenant viable. For buyers planning to buy a business in London or scanning small business for sale London Ontario listings, scrutinize the covenant as hard as you scrutinize the P&L. You are purchasing time, not just cash flow.
A short, practical checklist for your next deal
- Time: two to three years fits most London-area transactions, with longer non-solicits on named clients if needed. Geography: define by postal codes, municipal boundaries, or clean radii that match actual customer draw. Scope: describe services and customer segments precisely; avoid “any competitive business” vagueness. Carve-outs: allow passive investments, non-overlapping niches, or relocation outside the defined area with consent. Enforcement: secure a holdback or earnout, specify injunctive relief, and define “solicit,” “client,” and “confidential information.”
Final thought
Non-compete clauses are not about punishment. They are about honoring the price paid for goodwill and giving the buyer a fair runway. In London’s mid‑market, where buyers often bring personal guarantees and sellers care about legacy, a fair covenant protects both sides. Calibrate it to the business you are actually transacting, not to a theoretical worst case. The more your clause reads like the operating reality of a business for sale in London Ontario, the more likely it is to be signed, to be enforceable, and never to be tested.