When you sell your business, the buyer is paying for more than the equipment and the accounts. They're paying for the customers who keep coming back, which the law calls goodwill. If you could open up across the road the week after completion, much of that goodwill would follow you. So the buyer will ask you to promise not to, and those promises are restrictive covenants.
This guide covers the covenants a seller gives in a sale agreement, and how they differ from those in an employment contract. The law described is that of England and Wales.
The kinds of covenant a seller gives
| Covenant | What it stops you doing |
|---|---|
| Non-compete | Running, working for or investing in a competing business, in a set area, for a set time |
| Non-solicitation of customers | Approaching the business's customers to take their work |
| Non-dealing | Doing business with those customers at all, even if they come to you |
| Non-poaching | Recruiting or employing the business's staff |
| Confidentiality | Using or passing on the business's confidential information |
A non-dealing covenant is wider than a non-solicitation one, because it applies even when the customer approaches you. Covenants sometimes extend to people connected with you, such as family members or other companies you control.
In a share sale they sit in the share purchase agreement, and in an asset sale in the asset purchase agreement. They're usually agreed in outline at heads of terms, which is the time to push back, before the detail is drafted.
Your staff's own contracts may have covenants too, and the buyer will look at them. In a share sale they stay with the company. In an asset sale they move to the buyer with the rest of each employee's contract under TUPE.
Sale covenants are judged differently from employment covenants
A covenant that limits someone's work or business is a restraint of trade. A court will only enforce it if it protects a legitimate interest and goes no further than is reasonably necessary to do so. Reasonableness is judged as at the time the covenant was agreed, not when the buyer tries to rely on it.
Courts are more generous with covenants given on a sale. A buyer and a seller are generally treated as bargaining on equal terms, unlike an employer and an employee, and the buyer has paid for goodwill that needs protecting. So covenants in a sale agreement are more likely to be enforced, and can be longer and wider, than those in an employment contract.
There are still limits. In a 2024 High Court case, Literacy Capital v Webb, a buyer asked for an injunction to enforce covenants a seller had given that ran for 10 years, covered the buyer's other businesses as well as the one it bought, and applied across the UK and the Channel Islands. The only evidence of where the business had worked was a police contract in Norfolk and Suffolk. The court refused the injunction and held the covenants void, because they reached far beyond anything needed to protect the business that was sold.
How long and how wide a covenant can go
There's no fixed maximum in law. A useful marker comes from competition law. A merger, and any restriction directly related and necessary to it, is generally excluded from the ban on anti-competitive agreements. The CMA's guidance on when a seller's non-compete falls within that exclusion says the following.
- It's justified for up to three years when the buyer takes over both goodwill and know-how, and up to two years when only goodwill passes.
- It should cover only the area where the business sold its products or services before the sale.
- It should cover only the products and services of the business that was sold.
- It can stop you holding shares in a competitor, but not shares held purely as an investment.
- Non-solicitation and confidentiality clauses are judged in a similar way.
That guidance is about competition law rather than whether a court will enforce a covenant between you and the buyer, but the questions are much the same. In both, what counts is whether the covenant fits the business you sold, including where it traded and how long its goodwill needs protecting.
If you're staying on to work in the business
If you stay on for a handover, as an employee or a consultant, you'll usually give two sets of covenants. Those in the sale agreement protect the goodwill the buyer bought. Those in your new employment contract protect the buyer as your employer. They tend to be shorter and to run from when you leave. In Literacy Capital v Webb, nobody disputed that the 12 month non-compete the seller had given as a departing director was reasonable. It was the 10 year covenant she gave as a seller that failed.
Read the two sets side by side. Check when the sale covenants start. If they run from the day you stop working rather than from completion, the total time you're restricted can be much longer than it first looks. And think about what happens if the job doesn't work out. If you leave early, the covenants still apply, so make sure the price you're getting is worth that.
If you're keeping a share, the shareholders' agreement will usually have covenants of its own, often tied to when you stop being a shareholder. That can be years away.
Employment non-competes may change, but sale covenants are separate
As of 19 October 2026, there's no statutory limit on non-compete clauses in employment contracts. They're judged under the same common law test described above, and courts look harder at them than at covenants given on a sale.
That may change. In May 2023 the previous government said it would limit employment non-competes to three months, but that wasn't brought in. On 26 November 2025 the Department for Business and Trade published a working paper with options ranging from a limit on their length to an outright ban. On 9 October 2026 the Prime Minister said the government will legislate so that non-compete clauses are no longer a barrier to hiring for start-ups and scaling firms. He added that workers in the everyday economy shouldn't be prevented from moving jobs either, and that options on other restrictive practices would follow. The speech didn't say what form the change will take. Any change needs an Act of Parliament, so nothing has changed yet, and the Budget on 28 October 2026 may give more detail.
The working paper is about employment contracts. It asks whether reform should reach wider workplace contracts, but it doesn't propose changing covenants given on the sale of a business. A seller's covenant in a sale agreement is a different thing, judged on different grounds. Where a change could matter to you is the employment contract you sign if you stay on, so ask your solicitor to check that when the detail is published.
What to negotiate
A made-up example shows how much the drafting matters. You sell a domestic heating business that works around Maidstone. The buyer's first draft stops you taking part in any business carried on by the buyer or its other companies, anywhere in the UK, for five years. A version you could sign stops you offering domestic heating services within 15 miles of Maidstone for two years, and dealing with customers the business served in the year before completion. The second still protects what the buyer paid for.
- The length. Ask what the buyer needs it for. A period linked to the handover and the customers' habits is easier to justify than a round number.
- The area. Name towns, counties or a distance from your premises that match where the business trades. A covenant covering the whole country is hard to justify for a business that works in Kent.
- The activities. Limit them to what the business did at completion, not everything the buyer's other businesses do.
- The customers. Cover customers the business dealt with in a set period before the sale, not anyone who might become one.
- Your exceptions. List anything you already own or do, and anything you plan, such as consultancy in another field or small holdings in listed companies.
- Who's bound. Be careful about promising what relatives or other companies will do, if you don't control them.
- Unpaid money. If part of the price is paid later, ask what happens to the covenants if the buyer doesn't pay.
A covenant that goes too far may not be enforced at all, so a sensible scope protects the buyer as much as you. If one is broken, the buyer can ask a court for an injunction to stop it and claim damages for the loss.