No Obligation Clause FAQ

A "no obligation" clause (also called "no commitment" or "disclaimer of obligation") makes crystal clear that signing an NDA does NOT mean:

• You must complete a deal: No obligation to buy, sell, invest, or partner
• You must keep negotiating: Either party can walk away at any time
• You must accept any offer: No duty to agree to terms, pricing, or structure
• You must negotiate exclusively: Both parties can explore other opportunities
• You must share any particular information: No duty to disclose anything

In essence, the NDA only creates confidentiality obligations - nothing more. The business relationship or transaction being discussed is entirely optional.

You might think so, but courts don't always agree. Without explicit language, parties have successfully argued:

• Implied duty of good faith: Some courts find an implied duty to negotiate in good faith once confidential information is exchanged
• Promissory estoppel: "They led us to believe a deal was happening, so we're entitled to damages"
• Reliance damages: "We spent money on due diligence based on their representations"
• Unjust enrichment: "They used our information to improve their negotiating position elsewhere"

The "no obligation" clause explicitly negates these theories, preventing expensive litigation about whether the NDA created expectations beyond confidentiality.

Yes, but only to confidentiality-related obligations. Signing an NDA typically commits you to:

• Keep disclosed confidential information secret
• Use the information only for the stated purpose
• Return or destroy information when requested or when the NDA ends
• Comply with any other specific terms in the NDA (non-solicitation, non-compete, etc.)

But with a proper no obligation clause, you are NOT committed to:

• Proceeding with any business transaction
• Continuing negotiations for any period of time
• Paying any costs if you decide not to proceed
• Dealing exclusively with the other party

With a proper no obligation clause, yes. You can walk away:

• At any time during discussions
• For any reason (or no reason at all)
• Without explanation
• Without liability for the other party's costs
• Even if the other party has invested significant time and money

Exceptions to watch for:

• Break fees: Some NDAs include provisions requiring payment if you walk away after a certain point
• Exclusivity clauses: You may be restricted from pursuing similar deals during a period
• Good faith obligations: Some NDAs include duties to negotiate in good faith for a period
• Expense reimbursement: Some clauses require reimbursing certain costs if you terminate

Yes, that's the nature of NDA-protected discussions. The no obligation clause works both ways:

• They can terminate discussions at any point
• They owe no explanation for their decision
• You cannot claim damages for their withdrawal
• Your information remains protected by confidentiality obligations

Your protection lies in the confidentiality terms, not the deal:

• They must keep your information confidential
• They cannot use it for purposes outside the NDA
• They cannot share it with competitors
• These obligations typically survive termination of discussions

This is a real concern, and the no obligation clause unfortunately gives cover to bad actors. However, you're not without recourse:

Signs of potential abuse:

• Unusually detailed questions about operations unrelated to the stated purpose
• Requests for customer lists or proprietary data beyond what's needed for evaluation
• Known competitor suddenly interested in acquiring or partnering
• Negotiations that seem designed to stall while gathering information

Protective measures:

• Staged disclosure: Release information incrementally as trust builds
• Narrow purpose clause: Tightly define what the information can be used for
• Strong purpose limitation: Explicit prohibition on competitive use
• Documentation: Track what you disclosed and when
• Return/destruction provisions: Require immediate return if discussions end

If they abuse the NDA:

• Violation of purpose clause is actionable (not protected by no obligation clause)
• Using your information competitively violates confidentiality
• The no obligation clause only protects walking away, not misusing information

Generally no, with a proper no obligation clause. The clause typically includes language like:

"Each party bears its own costs and expenses in connection with evaluating any potential transaction."

This means:

• Your legal fees are yours
• Your accounting and due diligence costs are yours
• Your opportunity costs are yours
• Your travel and meeting expenses are yours

Exceptions:

• If the NDA includes expense reimbursement provisions (usually negotiated separately)
• If you later sign a letter of intent with break fee provisions
• If they violate the NDA itself (not just walking away from the deal)

It depends on your negotiating position and the nature of the transaction. Breakup fees and expense reimbursement are more common in:

• M&A transactions after signing a letter of intent
• Exclusive dealing arrangements
• Situations where one party makes significant upfront investments
• Public company acquisitions (to protect against superior proposals)

Considerations:

• Your leverage: If they want the deal more, you may get expense protection
• Stage of discussions: Usually not appropriate at the initial NDA stage
• Industry norms: Some sectors expect expense reimbursement, others don't
• Your investment: Higher due diligence costs justify more protection

With a proper no obligation clause, probably not - for the withdrawal itself. However, you may have claims if:

• They misrepresented their intentions: If they never intended to complete a deal and used negotiations to extract information
• They violated confidentiality: If they used your information in ways the NDA prohibits
• There was fraud: If they made false statements to induce you to share information
• They violated other NDA terms: Non-solicitation, non-compete, etc.

The hard truth:

In most cases, walking away from negotiations - even abruptly, even after months of discussions, even after the other party invested heavily - is permitted and protected by the no obligation clause. This is precisely what the clause is designed to allow.

The no obligation clause means they can walk away, but it doesn't mean you're unprotected. Focus on:

Strong confidentiality protections:

• Tight definition of confidential information
• Clear purpose limitations on use
• Prohibition on competitive use
• Long survival periods for confidentiality obligations

Strategic disclosure:

• Share information in stages as discussions progress
• Keep your most sensitive information for later stages
• Require milestone commitments before deeper disclosures
• Consider data room access levels

Structural protections:

• Request a letter of intent before extensive due diligence
• Consider exclusivity periods (they can't shop your information)
• Include non-circumvention provisions if introducing business relationships

The no obligation clause is your protection. Even if they're pressuring you:

• You have no duty to decide on any timeline but your own
• You can take as long as you need for due diligence
• You can walk away at any point if the deal doesn't work
• Artificial deadlines don't create legal obligations

When to be concerned:

• If they try to extract commitments in exchange for information
• If they claim the NDA itself creates deal obligations
• If they pressure you to sign side letters with commitments

With a standard no obligation clause, yes. The clause typically permits both parties to:

• Explore similar opportunities with third parties
• Negotiate with competitors
• Enter into agreements with others

If you want exclusivity, you need a separate provision:

• Exclusivity clause: Explicit agreement not to negotiate with others for a period
• No-shop provision: Commitment not to solicit other offers
• Right of first refusal: Opportunity to match any competing offer

Important: These exclusivity provisions typically go in a letter of intent or separate agreement, not the NDA. They represent a higher level of commitment than a simple NDA.

The confidentiality obligations survive. Even if there's no deal:

• All disclosed confidential information remains protected
• Neither party can use the information for non-permitted purposes
• The survival period in the NDA continues to apply
• Return/destruction obligations are triggered

What typically happens:

• Either party notifies the other that discussions have ended
• Return or destruction of confidential materials is requested and performed
• Confidentiality obligations continue for the specified survival period (often 2-5 years, or indefinitely for trade secrets)
• Other restrictive covenants (non-solicitation, etc.) may also continue

Some clauses labeled "no obligation" actually contain significant obligations. Watch for:

• "Good faith" negotiation requirements: "Each party agrees to negotiate in good faith" creates an obligation
• Expense reimbursement triggers: "If discussions terminate after 30 days, terminating party shall reimburse..."
• Exclusivity buried in the clause: "During discussions, neither party shall negotiate with third parties..."
• Minimum negotiation periods: "Parties shall negotiate for at least 90 days before terminating discussions"
• Notice requirements with penalties: "Failure to provide 30 days' notice before terminating shall result in..."

Yes, absolutely. Subsequent documents can and often do create obligations that didn't exist in the NDA:

• Letters of Intent (LOIs): May include binding provisions like exclusivity, expense reimbursement, breakup fees
• Term Sheets: Can create binding obligations even when marked "non-binding" if certain provisions are designated as binding
• Side Letters: Can modify or supersede NDA terms
• Oral agreements: In some circumstances, verbal commitments may create obligations

Protection:

• Read every document before signing
• Look for "binding" vs. "non-binding" designations
• Check for provisions that explicitly create obligations despite "non-binding" labels
• Be wary of documents that reference being "in addition to" or "notwithstanding" the NDA