Is a letter of intent or heads of agreement legally binding in Ontario?

Whether a letter of intent (LOI) or heads of agreement is legally binding in Ontario depends on its contents and the intentions of the parties as expressed in the document. Ontario courts look at the language used, the surrounding circumstances, and the conduct of the parties to determine whether a binding contract was formed.

Many letters of intent are deliberately drafted to be non-binding, containing language such as "subject to the execution of a formal agreement" or "this letter is not intended to create binding obligations." When language like this is present, the LOI is generally treated as a statement of intention to proceed toward a deal, not a binding contract.

However, some LOIs are partially binding — certain provisions (such as confidentiality obligations, exclusivity provisions, or a commitment to negotiate in good faith) may be enforceable even if the main transaction terms are expressed as non-binding until a final agreement is signed. Courts can find that specific provisions within an LOI are binding while others are not.

The problem arises when the language is ambiguous — the LOI says things like "the parties agree to complete the transaction on the following terms" without clearly stating whether the document itself is the final agreement or a preliminary step. Courts will examine the full context when the parties later dispute whether they made a deal.