What is a letter of intent for a commercial lease and is it binding in Ontario?
A letter of intent, sometimes called a term sheet, is a document landlords and prospective tenants use to outline the key proposed terms of a lease, such as rent, term length, and major conditions, before investing the time and cost of negotiating and signing a full lease. Most letters of intent are drafted with the intention of being non-binding, serving as a framework for negotiation rather than an enforceable agreement in themselves, and many explicitly say so.
Whether a particular letter of intent is actually binding in Ontario doesn't depend on its label, though — courts look at the specific language used and how the parties behaved, not just the title "letter of intent," to decide whether the parties intended it to have immediate legal effect. Even a document meant to be generally non-binding can contain individual clauses, such as an exclusivity or no-shop commitment, a confidentiality obligation, or an agreement to negotiate in good faith, that are intended to bind the parties even while the broader deal remains open.
Because ambiguity here creates real risk for both sides, a letter of intent should say explicitly whether it's binding overall, and identify clearly which specific provisions, if any, are meant to be enforceable regardless.
Key takeaways
- A letter of intent outlines proposed lease terms, usually intended as a non-binding negotiating framework.
- Whether it's actually binding depends on its wording and the parties' conduct, not its label.
- Specific clauses, like exclusivity or confidentiality, can be binding even within an otherwise non-binding document.
- State explicitly whether the letter of intent, and any specific clauses, are meant to be binding.