A letter of intent is not the contract, but it is the document that decides what the contract will say. Almost every term you leave vague gets settled later, under time pressure, in favour of whoever raises it second.
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Most letters of intent are written to be non-binding on the commercial terms and binding on a short list of others: confidentiality, exclusivity, the treatment of any deposit, who pays costs, and governing law. That split has to be stated expressly. A letter that says nothing about it invites an argument neither side wants to have.
Non-binding does not mean risk-free. Whether a document binds is judged on what the parties objectively appeared to agree, not on the label at the top. A letter that sets out price, closing date, assets and payment terms in complete detail, and is then acted on by both sides, can be held to be a contract even where somebody added "subject to a formal agreement" at the end.
The safe drafting is short and explicit. The parties intend to negotiate a definitive agreement; no obligation to complete arises unless and until that agreement is signed; and the numbered clauses that do bind are identified by number. Everything else in the letter is a statement of intention and can be departed from.
Deposits deserve their own clause. Say how much, who holds it, when it stops being refundable, and what happens if diligence fails or a consent is refused. A deposit held in a lawyer's trust account with written release conditions rarely becomes a dispute. One paid straight to the seller often does.
Price is not one number. Say how it is calculated, what is included at closing, and what is adjusted afterwards: inventory counted and valued at cost on closing day, receivables kept by the seller or bought at a discount, cash excluded, prepaid expenses and rent apportioned, and work in progress dealt with expressly rather than assumed.
Structure belongs in the letter too. Whether the deal is an <a href="/asset-vs-share-purchase-lawyer-ontario">asset or share purchase</a> changes the tax result for both sides, so agreeing a price before agreeing a structure guarantees one of you feels cheated. The same goes for excluded assets — the seller's vehicle, personal items, and anything sitting in a related company that everybody assumed was in.
Then the human terms: whether the employees are being kept, whether the seller stays on through a transition and for how long, whether that is paid, and the scope of the <a href="/non-compete-business-sale-ontario">non-competition and non-solicitation covenants</a>. Sellers who first hear about a five-year non-compete during agreement drafting tend to reopen the price.
Finally the conditions: how long the buyer gets for <a href="/business-due-diligence-lawyer-ontario">due diligence</a> and what access comes with it, the financing condition and its deadline, <a href="/commercial-lease-assignment-lawyer-ontario">the landlord's consent</a> to the lease, franchisor approval, and the target closing date. Each of those is a date somebody has to hit, so make them realistic.
The buyer's real consideration for spending money on diligence is exclusivity. A no-shop clause stops the seller negotiating with anyone else for a stated period and requires the seller to end existing discussions. Without one, a buyer funds the search that produces a better offer for the seller, and has no remedy when it does.
Keep the exclusivity period tied to the diligence timetable, with a fixed end date rather than "until closing". Sellers should resist an open-ended no-shop and should ask what happens if the buyer's financing never materializes. An exclusivity clause that quietly renews is a business taken off the market for months on somebody else's schedule.
Confidentiality runs both ways and matters more than people expect. The seller is handing over customer lists, margins and payroll to a person who may end up competing. A non-solicitation of the seller's employees during the exclusivity period is standard, and is separate from the covenants that will go into the purchase agreement itself.
Sellers should also decide what happens if the deal dies: return or destruction of materials, a bar on using what was learned, and no announcement to staff or customers without agreement. Deal fatigue is real. Staff who learn from a rumour that the business is for sale often leave well before closing.
Partly, by design. Confidentiality, exclusivity, deposit terms and costs are normally binding; the commercial terms are not. But the label does not decide it. A letter detailed enough to work as a contract, and acted on by both sides, can be held binding even where it says otherwise. State expressly which clauses bind.
Draft the letter with a lawyer. It costs a fraction of renegotiating a term later, and almost everything left vague is decided against whoever raises it second. Our published fee for a straightforward Ontario purchase or sale starts at $3,388.87 with taxes included, searches and filings extra at cost — see our pricing page.
Long enough to finish diligence and obtain consents, and no longer. Thirty to sixty days is common for an owner-operated business, with a fixed end date rather than one tied to closing. Buyers should ask for an extension where a landlord or franchisor causes the delay; sellers should refuse a no-shop that renews automatically.
Yes, and you should list them: satisfactory due diligence, financing, the landlord's consent to the lease, franchisor approval, and any key contract or employee. Listing them early tells the seller what the deal depends on and produces a realistic timetable. Each condition then reappears in the purchase agreement with a deadline attached.
That is normal, but say who holds it and when it stops being refundable. A deposit held in a lawyer's trust account and released only on written conditions rarely becomes a dispute. Avoid paying a deposit directly to the seller before due diligence, and avoid wording that makes it non-refundable before you have seen the records.
Open your file tonight — a licensed Ontario lawyer will confirm everything with you by tomorrow.