Breaking an LOI in an Ontario Business Sale: What Happens If You Walk Away

Due diligence turns up something unexpected, financing falls through, or one side simply gets cold feet — and now someone wants to walk away from a signed letter of intent. Before assuming that's either completely free of consequences or a full-blown breach of contract, it helps to understand what an LOI actually protects, and where the real exposure sits.

The short version: walking away from the commercial terms of a typical Ontario business-sale LOI is usually not, by itself, a breach of contract — but walking away in a way that violates one of the LOI's binding provisions can be.

The General Rule

Most Ontario LOIs are structured so the price, deal structure, and closing timeline are non-binding expressions of intent, while a specific, shorter list of clauses — commonly confidentiality, exclusivity, governing law, and cost allocation — are drafted to bind the parties regardless of whether the deal ever closes.

That structure exists precisely so either side can walk away from the deal itself (because due diligence didn't check out, financing didn't come together, or the numbers no longer make sense) without that alone being treated as a breach. What can still expose you is breaching one of the carved-out binding provisions on your way out the door.

Three Common Ways People "Break" an LOI

1. Simply declining to proceed to a definitive agreement

If the LOI's commercial terms are non-binding and neither side has violated a binding clause, declining to move forward is generally within the deal's own terms — frustrating, but not itself a legal wrong. This is the most common and lowest-risk way an LOI ends without a closing.

2. Walking away while breaching a binding clause

A seller who signs an exclusivity clause and then negotiates with, or sells to, a different buyer during the exclusivity period has walked away from the deal and likely breached a binding obligation. Here, the exposure isn't for failing to close — it's for breaching the specific clause that was meant to survive regardless.

3. Walking away after conduct that goes beyond "just not proceeding"

Depending on the facts — for example, misrepresenting information during the negotiation, or inducing the other side to incur costs or forgo other opportunities based on statements outside the four corners of the LOI — a party's conduct can create exposure separate from the LOI's binding/non-binding structure altogether. This is fact-specific territory and not something a general article can resolve; it needs a lawyer looking at what was actually said and done.

What a Buyer or Seller Can Typically Recover

What either side can actually recover if the other walks away depends heavily on:

• Which specific clause, if any, was breached — a breach of an exclusivity clause is analyzed differently than a breach of confidentiality, which is different again from conduct outside the LOI's binding terms.
• What the LOI itself says about remedies. Some LOIs specify consequences for breaching particular clauses; many leave it to general contract-law principles.
• What loss can actually be shown. A party generally has to demonstrate it suffered a loss connected to the breach — the mere fact that a deal didn't close is not, by itself, evidence of a compensable loss.

There is no default dollar outcome or formula here — this is decided case by case based on the specific facts and the specific document.

Reducing Your Risk Before You Sign

• [ ] Confirm, in writing, exactly which clauses of the LOI are binding and which are not.
• [ ] Don't rely on verbal assurances outside the document — put anything material into the LOI itself.
• [ ] If exclusivity is included, understand its full scope before agreeing, since a breach here is one of the more common sources of real exposure.
• [ ] Keep records of what due diligence findings or financing issues actually drove a decision to walk away — this matters if the other side disputes your reasons later.
• [ ] Get legal advice before sending a formal notice that you're walking away, especially if the other side is disputing your right to do so.

Frequently asked questions