Restrictive Covenants in buy sell agreements are common. Even without such a provision the seller implicitly agrees not to solicit and attempt to compete with the very customers sold to the buyer. But most buy sell agreements will provide for some sort of restrictive covenant.

Such a provision will generally address two issues. First, whether and under what circumstances the seller is restricted from soliciting or servicing the customers sold. Second, whether the seller is restricted from engaging in a competing business.

The restrictive covenant provision should then spell out the damages and remedy the buyer has if the seller breaches. The provision should be sufficiently detailed so that damages in a breach can be calculated. The provision will also contain the right to obtain injunctive relief.

You need to be careful that the buy sell contract makes it clear that buyer's damages are not limited to the amount of the purchase price allocated to the restrictive covenant. This allocation is usually low because it is usually taxed at ordinary income to the party who is restricted.

it would not be uncommon in a 3 million dollar deal for the restrictive covenant to be allocated for $100,000 or less, even though the damages that the buyer would suffer could be far more than that amount in the event of a breach by the seller.

As in all other contractual considerations, this issue needs to be spelled out in detail so that if it becomes a problem both the seller and the buyer have a reasonable expectation what the outcome will be.