How to Negotiate No Obligation Clauses - NDA Clause Library

🎯 The Core Negotiation Issue

The no-obligation clause seems simple, but it often becomes a battleground for larger concerns:

The discloser wants protection: They're sharing valuable secrets and fear you'll take their information and walk away
The recipient wants freedom: You need to evaluate opportunities without fear of being locked in

Sophisticated counterparties often try to sneak obligations into what appears to be a "no obligation" clause. Your job is to ensure the clause actually does what it says.

🚨 Red Flags to Watch For

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"Good faith negotiation" requirements
Creates an implied duty that courts may enforce. You could face liability for "bad faith" if you reject deals for subjective reasons.
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Expense reimbursement if you walk away
Makes you pay their deal costs if negotiations fail. Can run into hundreds of thousands for complex deals.
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Exclusivity periods
Prevents you from talking to competitors while evaluating. Kills your leverage and optionality.
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"Reasonable efforts" to close a deal
Vague standard that creates unpredictable obligations and litigation risk.
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Break-up fees or termination payments
Transforms a simple NDA into a binding commitment with financial penalties for walking away.

✅ What You Want in Your No-Obligation Clause

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Explicit "sole and absolute discretion" language
Confirms you can say no for any reason without justification.
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Each party bears own costs statement
Prevents expense shifting claims if the deal falls through.
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Freedom to deal with third parties
Explicitly preserves your right to explore competing opportunities.
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No binding deal until signed definitive agreement
Prevents arguments that term sheets or LOIs created commitments.
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Waiver of reliance and estoppel claims
Blocks claims that you "led them on" or made implied promises.

🤝 Negotiation Tactics

When They Want Good Faith Obligations

Their ask: "We need you to negotiate in good faith for at least 90 days."

Your response: "Good faith is too vague and creates litigation risk. We're happy to commit to reasonable responsiveness - we'll provide written feedback on proposals within 10 business days, but the decision to proceed or not must remain in our sole discretion."

Alternative compromise: Agree to a notice period (e.g., 5 business days written notice before terminating discussions) without any substantive good faith obligation.

When They Want Expense Reimbursement

Their ask: "If you walk after our due diligence, you should cover our costs."

Your response: "In exploratory discussions, each party should bear their own risk and expense. If we proceed to a binding LOI stage, we can discuss work fee arrangements at that point, but not in an NDA."

If you must give something: Cap reimbursement at a low fixed amount (e.g., $10,000) and limit it to documented third-party expenses only, excluding internal costs and attorney fees.

When They Want Exclusivity

Their ask: "We need exclusivity while sharing our proprietary information."

Your response: "Exclusivity in an NDA isn't appropriate - that belongs in a separate exclusivity agreement with defined terms and consideration. We're happy to keep discussions confidential, but we can't limit our business development activities based on preliminary discussions."

Alternative: If they insist, offer a very short exclusivity window (15-30 days maximum) with automatic expiration and no renewal rights.

When You're the Weaker Party

If you have less leverage (e.g., startup pitching to a large acquirer), you may need to accept some obligations. Protect yourself by:

Insisting on reciprocal obligations (if you have good faith duties, so do they)
Adding objective exit criteria (deal fails to close in 90 days, key terms not agreed by date X)
Capping any expense reimbursement at a low, fixed dollar amount
Requiring written notice before any obligation triggers

📝 Adding Good Faith Terms (When Appropriate)

Sometimes you'll want to add limited good faith obligations - perhaps you're the discloser and want some protection. Here's how to do it safely:

Procedural Good Faith (Lower Risk)

These create process commitments without substantive obligations:

Example - Response Commitment

"Each party agrees to respond in writing to any proposal or request for information within fifteen (15) business days of receipt. This obligation is procedural only and creates no obligation to agree to any particular terms or to continue discussions."

Substantive Good Faith (Higher Risk)

Avoid these where possible, but if required, add clear boundaries:

Example - Bounded Good Faith

"The parties agree to engage in good faith discussions regarding the proposed transaction for a period not to exceed thirty (30) days from the Effective Date. This good faith obligation shall not require either party to agree to any terms, make any concessions, or continue discussions beyond the thirty-day period. Each party's determination of whether to proceed shall be in its sole discretion and shall not be subject to any duty of reasonableness or objective standard."

🛠 Deal Protection Mechanisms

If the other party is concerned about you using their information to do a deal with someone else, address those concerns directly rather than through vague obligation language:

Protection Mechanism	How It Works	Risk Level
Strong purpose limitation	Restrict use of info to evaluating deal with them specifically	Low
Enhanced confidentiality	Shorter destruction timeline, stricter access controls	Low
Non-circumvention clause	Prevents going around them to their contacts/suppliers	Medium
Standstill agreement	Separate agreement limiting certain competitive actions	Medium-High
Break-up fee in LOI	Move commitment to binding term sheet stage, not NDA	Context-dependent

💬 Sample Negotiation Script

Situation: They've sent an NDA with hidden obligations in the "no obligation" clause.

Your Email Response

"Thank you for sending the NDA. We're pleased to move forward with confidential discussions. We've reviewed Section [X] regarding transaction obligations and have some concerns. While labeled as 'no obligation to proceed,' this section actually creates several obligations including [good faith negotiation / expense reimbursement / exclusivity]. These provisions are more appropriate for a binding LOI or term sheet stage, not preliminary NDA discussions. We propose replacing Section [X] with the following standard no-obligation language that protects both parties equally: [Insert your preferred balanced clause] This approach confirms that both parties can freely evaluate the opportunity without unintended commitments, while the confidentiality protections remain fully in effect. We're happy to discuss enhanced confidentiality measures if there are specific concerns about information protection. Please let us know if this works for you, or if you'd like to discuss alternative approaches."

💡 Key Negotiation Principles

Keep it separate: No-obligation language belongs in the NDA. Binding commitments belong in a separate exclusivity agreement or LOI.
Mutual is fair: If they want obligations, they should accept the same ones. Refuse one-sided commitment language.
Objective over subjective: Time-limited obligations (30 days) are better than subjective ones ("reasonable period").
Define the exit: Make clear what terminates any obligations (written notice, expiration date, failure to agree on key terms).
Read the whole clause: Hidden obligations often appear in subsections or qualifications buried in longer provisions.