- Most LOIs are structured to be non-binding on price and most commercial terms, with only specific clauses — confidentiality, exclusivity, cost allocation — drafted to bind the parties…
- If the LOI is silent on refundability, the dispute becomes a question of interpreting the parties' intentions and general contract principles — exactly the kind of ambiguity a lawyer…
- - Buyer walks away for no stated reason.
Most Ontario business purchases don't involve a deposit until the definitive purchase agreement is signed — but in some deals, a buyer is asked to put down a deposit alongside the letter of intent (LOI) itself, before due diligence is even complete. If that deal falls apart, whether the deposit comes back depends almost entirely on wording most people never read closely until it matters.
There is no default rule under Ontario law that automatically makes an LOI deposit refundable — or automatically forfeits it. It comes down to what the LOI, or a separate deposit agreement, actually says, and why the deal fell through.
Why an LOI-Stage Deposit Isn't the Norm
Most LOIs are structured to be non-binding on price and most commercial terms, with only specific clauses — confidentiality, exclusivity, cost allocation — drafted to bind the parties immediately. A deposit sits awkwardly against that structure: it's a cash commitment attached to a document that, in most other respects, doesn't commit anyone to anything yet. When a deposit does appear at this stage, it's usually because the seller wants some signal of the buyer's seriousness before granting exclusivity or opening its books to due diligence.
What Actually Controls Whether It's Refundable
| Question | Why it matters |
|---|---|
| Does the LOI, or deposit agreement, say the deposit is refundable, non-refundable, or refundable only in specific circumstances? | This is the starting point — the document's own wording generally governs. |
| Who caused the deal to fall apart? | Some agreements make refundability depend on which side walked away, or whether a specific condition failed. |
| Was the deposit held in trust by a lawyer, or paid directly to the seller? | Funds held in trust are easier to hold pending resolution; funds paid directly to the seller may already be spent. |
| Is there a specific triggering event named — for example, failure to reach a definitive agreement by a stated date? | A clear trigger reduces disputes; silence on this point is where conflicts usually happen. |
If the LOI is silent on refundability, the dispute becomes a question of interpreting the parties' intentions and general contract principles — exactly the kind of ambiguity a lawyer should close before any money changes hands, not after.
Common Scenarios
- Buyer walks away for no stated reason. A non-refundable deposit clause is more likely to be enforced against the buyer in this situation, if the LOI says so clearly.
- Seller breaches exclusivity or negotiates in bad faith. Some deposit agreements specifically carve out a refund, or an additional remedy, if the seller is the one who caused the breakdown.
- Due diligence reveals a serious problem with the business. Whether this triggers a refund depends on whether the LOI ties the deposit to specific conditions, such as satisfactory due diligence, being met.
- The parties simply can't agree on the definitive agreement's terms. This is the greyest scenario — deposit agreements vary widely on what happens here, and it's where disputes are most likely.
How to Protect Yourself Before You Send (or Accept) a Deposit
- [ ] Insist the deposit terms be written down explicitly — never rely on a verbal understanding.
- [ ] Specify exactly which circumstances make the deposit refundable, non-refundable, or partially refundable.
- [ ] Have the deposit held in a lawyer's trust account rather than paid directly, so funds aren't already spent if a dispute arises.
- [ ] Tie refundability to specific, objective triggers — a stated deadline, a defined condition — rather than vague language like "if the deal doesn't work out."
- [ ] Have a lawyer review the deposit language before you sign. It's a small clause with an outsized ability to cause disputes.
Frequently asked questions
Can a seller just keep the deposit if the buyer changes their mind?
Only if the agreement clearly says the deposit is non-refundable in that circumstance. Without clear wording, the seller keeping the deposit can itself become a dispute.
Is a deposit at the LOI stage even a good idea?
It depends on the deal. Some sellers want it as a sign of good faith before granting exclusivity; some buyers resist paying anything before due diligence is complete. Neither side is wrong to want or resist it — the key is documenting whatever is agreed clearly.
Where should the deposit be held?
Generally, a lawyer's trust account is the safer option for both sides compared to paying the seller directly, since trust funds can be held pending resolution rather than already spent.
What if the LOI says nothing about the deposit's terms?
This is a risk for whoever holds it — refundability becomes a matter of interpretation and potential dispute rather than a settled point. It's worth fixing this gap before signing rather than after money has moved.
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