Is a Letter of Intent Legally Binding in British Columbia?

A letter of intent, or LOI, sets out the main terms of a proposed business sale before the full purchase agreement is written. Many people assume it is only a handshake on paper, while others find that parts of it carry real consequences.

There is no single answer to whether an LOI is binding. This article explains what to look for in British Columbia, which general rules apply, and when to bring in a lawyer.

This article covers the law of British Columbia.

Why the answer is not simply yes or no

An LOI often includes both proposed commercial terms, such as price and timing, and other clauses, such as confidentiality, exclusivity or who pays costs. Whether any particular clause binds you depends on the exact words used and the surrounding facts, and it is worth having a lawyer confirm how that applies to your document.

A lawyer can read the whole document and explain how it affects you. The sections below cover the general rules that often matter around an LOI, including deposits, land and leases, public searches, and time limits.

Clauses to read closely

• Binding or non-binding statement: look for words saying which parts are intended to bind and which are not.
• Exclusivity: whether the seller agrees not to negotiate with others, and for how long.
• Confidentiality: what information is covered and whether it continues if the deal fails.
• Costs: who pays legal, accounting and search costs if the deal does not close.
• Deposit: whether money is paid, to whom, and when it is returned.
• Conditions: due diligence, financing, landlord consent and similar conditions to closing.

If you are unsure what a clause means, ask before signing. Changing a sentence at this stage is usually easier than arguing about it later.

Deposits, land and leases

If the sale includes land or a lease, a contract respecting land or a disposition of land is not enforceable unless there is a signed writing, an act or acquiescence by the party to be held, or reasonable reliance making enforcement necessary to avoid unfairness. Paying or accepting a deposit or part payment counts as such an act. So handing over a deposit can matter even if the paperwork looks informal.

If a deal collapses and one side faces forfeiture of a deposit, the court may relieve against all penalties and forfeitures, on terms, including costs and compensation, that it sees fit. The Act has no dedicated deposit rules, so the outcome depends on the facts and the wording of the agreement.

Searches to consider before you pay a deposit

Whatever the LOI says, it helps to know what you are buying before money changes hands. Several public searches can show claims against the business or its assets, and each one covers only part of the picture.

• Personal Property Registry (PPR): it records security agreements, commercial liens and buyers' interests in goods left with the seller. A government-staff search costs $10, or a client online search costs $7 plus a possible $1.50 operator fee.
• Who can search: direct online PPR access is limited to professionals with a premium account, so a buyer usually searches through Service BC, a mailed request, or a lawyer or search agent.
• Other liens: builders' liens, family maintenance liens and some other liens are filed with other agencies, so a PPR search alone does not reveal every lien.
• Land title: if the business owns or holds an interest in land, a Land Title Office title search costs $11.06 as at April 1, 2026.
• Bankruptcy and insolvency: the federal Bankruptcy and Insolvency Records Search covers bankruptcies and proposals registered in Canada since 1978 and receiverships registered since January 1993, with a minimum fee of $8 per search.
• Company directors: a corporate search on a BC company produces a company summary and Notice of Articles showing current directors.

Tax and employees matter too. The PST publication tells a buyer to obtain a PST clearance certificate before buying a business; without one, the buyer is liable for an amount equal to any outstanding amount owed by the seller. If all or part of a business is disposed of, an employee's employment is deemed continuous for the purposes of the Employment Standards Act, so the buyer takes on the seller's obligations to employees who stay. A different rule applies where a trustee in bankruptcy sells the business as a going concern: the buyer is not liable for wages owed before the bankruptcy, and the employees' prior service is not treated as continuous. An exception applies if the seller terminates employees before the sale, in which case the seller owes their outstanding wages and compensation and the purchaser is not liable. How these apply depends on your deal, so it is worth confirming with a lawyer or accountant.

Time limits if things go wrong

A court proceeding must not be commenced more than 2 years after the day on which the claim is discovered. A claim is discovered when the person knew or reasonably ought to have known of the loss, that the defendant's act caused it, and that a proceeding is appropriate.

The period is extended if a person acknowledges liability in respect of the claim, and the acknowledgment generally must be in writing and signed. Keep emails and signed documents from the negotiation.

What to do next

• Read every clause and mark which ones appear to apply immediately.
• Ask for the binding and non-binding parts to be stated clearly.
• Check the length of any exclusivity period before you sign.
• Do not pay a deposit until you know the terms for its return.
• Ask a lawyer to review the LOI before signing, or promptly if you have already signed.
• Keep copies of everything exchanged with the other side.

Frequently asked questions