The Letter of Intent That Wasn't as Non-Binding as It Looked

The situation

Parisa and Arman both taught at elementary schools, and for six years they had run a small after-school tutoring business on evenings and weekends, built up one family at a time. When a competing tutoring business a few kilometres away came up for sale, owned by a man named Rohan who was retiring from the industry, they saw a chance to roughly double their student roster in a single move.

Rohan's accountant had prepared a short letter of intent, sometimes called an LOI, describing the deal in plain terms: a purchase price of roughly $950,000, a target closing date about ten weeks out, and a period during which Rohan would not shop the business to other buyers. Parisa and Arman were told it was a formality, something both sides sign to show they are serious before the real paperwork begins. Eager not to lose the deal to another interested buyer they knew was circling, they signed it the same week, without having a lawyer look at it first.

They came to Treadstone Law about three weeks later, once the due diligence period was underway and they had started reviewing the target business's financial records. Something in the numbers troubled them, and they wanted to know whether they could still negotiate the price down, or walk away, if what they found did not match what they had been told.

Neither of them had been through a business purchase before. Their own tutoring business had grown organically, one referral at a time, and buying an existing operation with its own staff, leases, and client contracts was new territory. That inexperience was not unusual, and it was exactly the gap a letter of intent is supposed to protect against, by giving a buyer a structured, lower-risk period to test whether the deal makes sense before anyone is locked in.

What the letter of intent actually said

Our review of the document delivered an unwelcome answer: the letter of intent Parisa and Arman had signed was not clearly non-binding at all. A well-drafted letter of intent usually separates its terms into two categories. A small set of provisions, typically confidentiality and exclusivity, are meant to bind the parties immediately. Everything else, including the price and closing date, is meant to remain non-binding and subject to a formal purchase agreement and satisfactory due diligence, with language saying so in plain terms.

Rohan's letter of intent did not draw that line. It used commitment language throughout, stating that the buyer "agrees to purchase" the business on the stated terms, without ever saying the deal was subject to due diligence, financing, or a further definitive agreement. There was no clause identifying which sections were binding and which were not. Read on its own, a court could reasonably treat the entire letter as an enforceable agreement of purchase and sale in substance, just with a different label on top.

That mattered because the due diligence findings were genuinely concerning. Enrollment at Rohan's business had declined by close to 20 percent over the prior year, a fact not reflected in the summary financials Parisa and Arman had first been shown, and two of the business's longest-serving tutors had already given notice to leave once the sale closed. If the letter of intent was binding as written, Parisa and Arman had no contractual foothold to renegotiate the price or walk away over what they had learned. Rohan's lawyer could argue they were obligated to close at the original $950,000, regardless of what due diligence turned up, and that walking away would expose them to a claim for damages.

What we did

1. Assessed how exposed the couple actually was. Before raising any concerns with the other side, we reviewed the full document and the parties' conduct since signing, including emails where Parisa and Arman had asked follow-up questions about the target business. Nothing in that conduct amounted to a waiver of their position, which meant there was still room to fix the letter of intent before it hardened into something harder to challenge.
2. Opened a conversation with Rohan's lawyer, not Rohan directly. We contacted the seller's lawyer rather than letting the clients raise the issue themselves, framing it as a drafting gap rather than an accusation. Sellers who are mid-retirement and eager to close a deal generally have every incentive to fix an ambiguous letter of intent rather than risk the whole transaction collapsing into a dispute over its enforceability.
3. Negotiated an amending letter that made the non-binding terms explicit. The amendment confirmed that only the confidentiality and exclusivity provisions were binding, and that the price, closing date, and every other commercial term remained subject to satisfactory due diligence and a definitive purchase agreement still to be negotiated. This is the clause that should have been in the original letter of intent from the start.
4. Used the corrected conditions to reopen the price discussion. With a genuine due diligence condition now in place, we presented the enrollment decline and the departing tutors as a material change from what had been represented, and proposed a revised price that reflected the smaller, less stable business Parisa and Arman were actually being asked to buy.
5. Built proper conditions into the purchase agreement that followed. Once the amended letter of intent cleared the way, the definitive share or asset purchase agreement included financing and due diligence conditions in the buyer's favour, along with representations from Rohan about student enrollment and staff retention that had been noticeably absent from the original deal terms.

The outcome

Rohan's lawyer accepted the amendment within a few days, confirming in writing that the letter of intent had always been intended as non-binding outside the confidentiality and exclusivity terms. With that confirmed, the enrollment decline and staff departures became legitimate grounds to renegotiate rather than a grievance with no contractual footing.

The two sides settled on a revised purchase price of roughly $820,000, about $130,000 below the original figure, reflecting the smaller and less stable student base the numbers now showed. Parisa and Arman also secured a short transition period where Rohan would help introduce them to families before the two departing tutors' notice periods ended, softening the impact of the staff turnover on the business they were acquiring.

The deal closed on the revised terms roughly eight weeks later than the original target date, largely because the amendment and renegotiation added a few weeks that a properly drafted letter of intent would not have needed. Nothing about the outcome was dramatic. No court filing, no walked-away deal, no damages claim. That was the point: the risk of being forced to close at the original price, or facing a breach of contract claim for walking away, was identified and neutralized before it ever became a real dispute, while there was still room to fix the paperwork rather than fight over it.

What you can learn from this