Non-competition clauses- what are they and why do I need one?

In a purchase agreement, purchasers will often want to negotiate a covenant with the vendor limiting the vendor’s ability to compete with them after closing in a similar business. If you are buying a bakery, you don’t want the vendor opening up shop a few doors down the street after the closing. If the vendor will agree to a non-competition covenant on closing, this possibility is eliminated. Non-competition covenants can be useful but, in order to be enforceable, they cannot be overly restrictive. It might be reasonable to restrict the vendor from opening up a similar business for 1 to 5 years following the closing, and for this restriction to operate within a radius of 1 to 5 kilometres surrounding the current business location, depending upon the type of business being sold.