Can a seller be sued for backing out after signing a term sheet?
Generally not for the sale itself, if the term sheet's core terms were drafted to be non-binding, which is the normal approach for a business purchase and sale. Backing out of a deal you were never legally obligated to complete isn't, on its own, something a buyer can sue over, no matter how far along the discussions felt.
Where sellers get caught out is assuming this protection extends to everything they signed. If the term sheet also contained a binding exclusivity clause, a confidentiality obligation, or a cost-allocation provision, backing out of the deal doesn't excuse you from those separate commitments — and if backing out involved breaching one of them (for example, by having already been talking to another buyer in breach of exclusivity), that specific breach can be actionable even though the underlying sale wasn't binding at all.
The classic mistake is treating "the deal isn't binding" and "nothing I signed is binding" as the same thing — they usually aren't. Before assuming you're in the clear, or that you're exposed, a Treadstone business lawyer can identify exactly which of the term sheet's provisions survive your decision to walk away.
Key takeaways
- Backing out of a non-binding deal usually isn't itself actionable.
- Specific binding clauses — exclusivity, confidentiality, costs — can survive even when the deal itself doesn't.
- Liability usually attaches to breaching one of those specific clauses, not to walking away generally.
- Have a lawyer confirm which provisions in your specific term sheet actually survive.