Is a letter of intent binding before signing a full commercial agreement of purchase and sale in Ontario?
Generally, no. A letter of intent (LOI) in a commercial real estate deal is usually meant to summarize the parties' negotiated business terms, such as price, closing date, and key conditions, without creating a binding obligation to actually complete the purchase. Courts look closely at the actual wording and the parties' expressed intentions to figure out whether an LOI was meant to bind them, rather than assuming one way or the other.
The nuance that catches people off guard is that an LOI can be binding in parts even while remaining non-binding on the core deal. It's common for an LOI to say the price and closing terms are "subject to" a formal agreement of purchase and sale, while specifically making certain provisions binding right away, such as an exclusivity or no-shop period, confidentiality obligations, or an allocation of due diligence costs. Signing an LOI without reading which clauses are meant to bind you can create real obligations you didn't expect.
Before signing, both sides should have a lawyer review the LOI's language carefully, and clearly state which provisions, if any, are intended to be binding, so there's no dispute later about what was actually agreed.
Key takeaways
- LOIs are generally non-binding on core deal terms unless the wording says otherwise.
- Courts look at the actual language and intent expressed in the document, not assumptions.
- Specific clauses like exclusivity, confidentiality, or cost-sharing are often made binding even in a non-binding LOI.
- Have a lawyer review which provisions are binding before signing, not after a dispute arises.