A buyer paying for goodwill is buying customer relationships, reputation and market position — all of which can leave with the seller. Covenants protect that. But a covenant drawn wider than necessary risks being unenforceable, and an unenforceable covenant protects nobody.
How Reasonableness Is Assessed
The broad principle is that a restraint must go no further than is reasonably necessary to protect a legitimate interest of the party taking the benefit. On a business sale the buyer plainly has such an interest — they have paid for the goodwill — so the question becomes whether the particular restraint is reasonable in its duration, its geographic extent and the range of activities it covers, measured against that interest. Covenants given by a seller on a sale of a business are generally viewed more favourably than covenants in an employment contract, because the parties dealt at arm’s length and the seller was paid for the goodwill being protected. That is a real difference and it gives buyers meaningful scope. It is not, however, a blank cheque: it remains a question of degree on the particular facts, and it is one of the areas where general assumptions travel worst. The four usual covenants — non-competition, non-solicitation of customers, non-solicitation of employees, and confidentiality — should each be assessed separately rather than accepted or resisted as a block.
Buyers: Draft Narrowly. Sellers: Watch Three Things.
The buyer’s instinct is that more is safer — every activity, the whole country, an indefinite period. The opposite is true. A restraint going beyond what is reasonably necessary risks being unenforceable at the very moment it is needed, and a carefully drawn covenant that genuinely protects the goodwill acquired is worth far more than a sweeping one that may be worth nothing when tested. Draft for enforceability, not ambition. Sellers should watch: scope creep — covenants so broad they prevent working in your own industry at all, which for someone selling at fifty rather than retiring constrains the rest of a working life; duration, which should be proportionate to how long the goodwill genuinely needs protecting; and the interaction with any handover or consultancy arrangement, because a seller staying on may find the covenant period runs from the end of that engagement rather than from completion, extending the restriction considerably. The practical advice is simple and frequently ignored: if you intend to work again, say so before the covenants are drafted. Shaping them around your plans is a straightforward negotiation at the right moment and an impossible one afterwards.
Confidentiality is the quiet one. Unlike the others it frequently continues indefinitely as to genuine trade secrets, and it is rarely negotiated because it looks uncontroversial. Read what it actually covers.
Covenants being drafted? 01 5827148.
Richard O’Shea — Solicitor & TEP
Solicitor at Mary Molloy Solicitors, established 1981, and a TEP of the Society of Trust and Estate Practitioners. The firm acts for buyers and sellers on business sales and acquisitions — structure, heads of terms, due diligence, the sale agreement, warranties and disclosure, completion and what follows it. Because a substantial share of Irish business sales are retirement exits, the firm’s estate and succession practice sits alongside the transactional work: the deal and what happens to the proceeds are usually the same client’s problem. Nothing here is tax advice — structure is tax-driven and that belongs with your accountant and Revenue, before heads of terms are signed. 01 5827148 · richardoshea@marymolloysolicitors.com · LinkedIn
General information, not legal advice. This website contains general information about Irish law on business sales and acquisitions. It is not legal advice and does not create a solicitor—client relationship. Every transaction turns on its own facts — the structure, the documents, the parties, the consents required — and advice on yours requires a consultation.
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