Which Clauses in an Ontario LOI Are Actually Binding?

You have just signed a letter of intent (LOI) to buy or sell a business, and someone on the other side of the deal mentions "the binding parts." Binding parts? You thought the whole point of an LOI was that it wasn't a contract yet.

That instinct is mostly right — and mostly wrong. Most Ontario business-sale LOIs are deliberately structured so the price and deal terms are non-binding until a definitive purchase agreement is signed, while a handful of specific clauses are drafted to be binding immediately, on signing the LOI itself. Knowing which is which matters, because treating a binding clause as a formality is how people end up on the losing end of a dispute.

This article walks through how that split typically works, so you know what you are actually agreeing to the moment you sign.

Why LOIs Are Split This Way

An LOI in an Ontario business sale generally serves two jobs at once. It records that the parties have agreed on the big-picture shape of a deal — price range, structure, key conditions — without locking either side into a contract before due diligence is done. At the same time, it protects both sides during the negotiation period itself, before there's a definitive agreement to rely on.

Those two jobs pull in different directions, which is why LOIs are typically drafted with an explicit statement that most of the document is non-binding, alongside a short, carved-out list of clauses stated to be binding regardless.

Clauses That Are Typically Non-Binding

The commercial heart of the LOI is usually not enforceable as a contract on its own:

• Purchase price (or price range/formula)
• Deal structure (asset purchase vs. share purchase)
• Proposed closing timeline
• Representations and warranties the parties expect to negotiate
• Financing and other closing conditions

The logic is straightforward: neither side has done due diligence yet, and neither wants to be locked into a number or structure before they know what they're actually buying or selling. If the deal falls apart in due diligence, walking away from these terms generally does not, by itself, expose either party to a breach-of-contract claim.

Clauses That Are Typically Binding

A short list of provisions is usually drafted to survive and bind the parties immediately, even while everything else stays open:

• Confidentiality — obligations not to disclose or misuse information exchanged during negotiations.
• Exclusivity / "no-shop" — a seller's promise not to solicit or negotiate with other buyers for a defined period.
• Governing law and jurisdiction — which province's law applies and where disputes get resolved.
• Cost allocation — who pays their own advisor fees regardless of whether the deal closes.
• Access and cooperation for due diligence — sometimes made binding so the buyer can actually get the information it needs.

Because these clauses are meant to operate during the non-binding negotiation period, drafting them as binding is often the whole point — an exclusivity clause that wasn't enforceable would not protect the buyer from the seller quietly shopping the deal elsewhere.

How to Tell the Difference in Your Own LOI

Don't assume — read the document. Well-drafted Ontario LOIs generally say so explicitly, but the labelling style varies:

1. Look for an express "binding provisions" clause. Most LOIs list, by section number, exactly which clauses survive as binding and state that everything else is an expression of intent only.
2. Check for a closing "entire non-binding" statement. Many LOIs also include a general statement that the document (apart from the listed binding sections) creates no obligation to complete the transaction.
3. Read exclusivity and confidentiality clauses on their own terms. Even inside a "mostly non-binding" LOI, these sections are usually self-contained and drafted using firm, contract-style language ("shall not," "agrees to") rather than aspirational language ("intends to," "anticipates").
4. Don't assume silence means non-binding. If the LOI doesn't address bindingness at all, you are relying on general contract-interpretation principles to sort out what was meant — a much weaker position than having it spelled out. Have a lawyer review the document before you sign, not after a dispute starts.

A Quick Comparison

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