Letter of Intent (LOI) Sample for Canadian Businesses
Quick Answer
A letter of intent (LOI) is a preliminary document that outlines the key terms and conditions of a proposed business transaction before a formal contract is drafted. In Canada, an LOI is typically non-binding on its main commercial terms, though specific clauses — such as confidentiality, exclusivity, and governing law — can be made binding. LOIs are commonly used for business acquisitions, joint ventures, commercial leases, and partnership arrangements. The correct LOI format includes party identification, transaction overview, key terms, timelines, and clear binding/non-binding language. Download a free LOI template or book a free consultation with a lawyer from our network.
Whether you are acquiring a business, proposing a joint venture, or negotiating a commercial lease, a well-drafted letter of intent (LOI) sets the foundation for the entire deal. It puts the key terms in writing before either side invests significant time and money into lawyers, due diligence, and formal agreements. Yet many Canadian business owners either skip this step entirely or use vague language that creates confusion — or worse, unintended legal obligations.
This guide provides multiple LOI example letters for different business scenarios, explains the proper LOI format, breaks down which clauses should be binding versus non-binding, and covers the critical legal nuances that apply specifically to Canadian transactions. If you need an LOI for a real estate deal, see our dedicated real estate letter of intent page.
What Is a Letter of Intent (LOI)?
A letter of intent — also called an LOI, letter of interest, term sheet, or memorandum of understanding (MOU) — is a written document that outlines the preliminary terms and conditions of a proposed deal between two or more parties. It signals serious interest in moving forward and provides a framework for formal negotiations.
In Canadian business practice, an LOI serves several important purposes: it confirms that both parties are aligned on the major deal points before committing legal resources, it establishes a timeline for due diligence and closing, and it can include binding obligations around confidentiality and exclusivity that protect the parties during the negotiation process. The LOI is not the final agreement — it is the roadmap that leads to one.
When Should You Use a Letter of Intent?
An LOI is appropriate in a wide range of Canadian business contexts. Here are the most common situations where a letter of intent is used:
Business Acquisitions
Buyer signals intent to purchase a business before formal due diligence begins. Includes proposed price, structure (asset vs. share deal), and timeline.
Joint Ventures
Two or more parties outline how they will collaborate on a project, including capital contributions, roles, profit sharing, and governance.
Commercial Leases
Tenant and landlord agree on basic lease terms — rent, size, tenant improvements, term length — before drafting the full commercial lease agreement.
Partnerships & Investment
Potential partners agree on capital, responsibilities, and profit-sharing before signing a formal partnership agreement.
Vendor & Supply Agreements
Businesses outline pricing, volumes, and delivery terms before entering a formal service agreement or supply contract.
Licensing & IP Deals
Parties agree on key licensing terms, royalty rates, and usage rights before the full licensing agreement is drafted.
Correct LOI Format: What Every Letter of Intent Should Include
While there is no single mandatory LOI format under Canadian law, the most effective letters of intent follow a standard structure. Here are the essential sections:
Header and Date
Use formal business letter formatting. Include the date, sender’s full legal name and address, and the recipient’s full legal name and address.
Introduction and Purpose
State the purpose of the letter — to express intent to enter into a specific transaction. Identify the parties and the nature of the proposed deal clearly.
Key Commercial Terms
Outline the major terms: purchase price (or range), payment structure, assets or shares included, conditions precedent, and any assumed liabilities. Be specific enough to guide negotiations but flexible enough to allow refinement.
Due Diligence and Timeline
Specify the due diligence period, target closing date, and any milestones. Include what information the seller or counterparty is expected to provide and by when.
Binding vs. Non-Binding Clauses
Clearly state which sections are non-binding (the commercial terms) and which are binding (typically confidentiality, exclusivity, expenses, and governing law). This is the most critical element.
Confidentiality and Exclusivity
Include a confidentiality clause preventing disclosure of deal terms and proprietary information. An exclusivity (or “no-shop”) clause prevents the other party from negotiating with competitors for a specified period. Both are typically binding.
Expiration, Governing Law, and Signatures
Set a deadline for the LOI’s expiration (typically 30–90 days). Specify which province’s laws govern the LOI. Both parties sign — though in some cases only the proposing party signs and the recipient countersigns to accept.
Binding vs. Non-Binding: The Most Important Distinction in Any LOI
The most critical legal issue in any letter of intent is clarity about which provisions are binding and which are not. Canadian courts have repeatedly held that poorly drafted LOIs can create enforceable obligations — even when the parties did not intend to be bound.
✅ Typically Binding
Confidentiality / non-disclosure obligations
Exclusivity / “no-shop” period
Responsibility for expenses and costs
Governing law and dispute resolution
Non-solicitation of employees
❌ Typically Non-Binding
Purchase price and payment terms
Deal structure (asset vs. share purchase)
Closing conditions and timelines
Representations and warranties
Employee retention commitments
⚠️ Legal Warning: In Bawitko Investments Ltd. v. Kernels Popcorn Ltd., the Ontario Court of Appeal established that where parties intended to create a binding agreement and included all essential terms, the document can be enforced — even if labeled a “letter of intent.” Always use explicit non-binding language on commercial terms and have a lawyer review your LOI.
LOI Sample #1: Business Acquisition
The following is a sample letter of intent for purchasing a business in Canada. Adapt it to your specific transaction. For a downloadable template, visit our purchase of business page.
Letter of Intent — Business Acquisition
[Date]
[Seller’s Full Legal Name]
[Address, City, Province, Postal Code]
RE: Non-Binding Letter of Intent — Proposed Acquisition of [Business Name]
Dear [Seller’s Name],
[Buyer’s Full Legal Name] (“Buyer”) is pleased to submit this non-binding letter of intent to acquire [100% of the shares / substantially all of the assets] of [Business Legal Name] (the “Company”). We believe this transaction presents a mutually beneficial opportunity, and we look forward to working with you to bring it to completion.
1. Transaction Structure. The Buyer proposes to acquire [the shares / the assets] of the Company through a [share purchase / asset purchase] transaction.
2. Purchase Price. The total proposed purchase price is $[AMOUNT], subject to adjustment based on closing working capital, to be paid as follows: (a) $[AMOUNT] in cash at closing; (b) $[AMOUNT] by way of a promissory note payable over [X] months; (c) $[AMOUNT] as an earn-out payable upon achievement of [specified milestones].
3. Due Diligence. The Buyer shall have [45–60] days from acceptance of this LOI to conduct due diligence on the Company’s financial records, contracts, employees, operations, assets, liabilities, and legal compliance.
4. Conditions Precedent. Closing shall be conditional upon: (a) satisfactory completion of due diligence; (b) negotiation and execution of a definitive [Asset Purchase Agreement / Share Purchase Agreement]; (c) receipt of all necessary consents and regulatory approvals; (d) no material adverse change to the Company between signing and closing.
5. Exclusivity (Binding). For a period of [60] days from the date of acceptance, the Seller agrees not to solicit, encourage, or accept any competing offers or proposals for the sale of the Company.
6. Confidentiality (Binding). Both parties agree that the existence and terms of this LOI, and all information exchanged in connection with the proposed transaction, shall remain strictly confidential. [See attached non-disclosure agreement.]
7. Non-Binding Nature. Except for Sections 5, 6, and 8, this LOI is non-binding and does not create any legal obligation on either party to complete the proposed transaction. The obligations of the parties shall only become binding upon execution of a definitive agreement.
8. Governing Law (Binding). This LOI shall be governed by the laws of the Province of [Province] and the federal laws of Canada applicable therein.
9. Expiration. This LOI shall expire if not accepted by [Date].
Sincerely,
_________________________
[Buyer’s Name, Title]
Accepted and Agreed:
_________________________ Date: ___________
[Seller’s Name, Title]
Need a Custom LOI for Your Deal?
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LOI Sample #2: Joint Venture
Joint venture LOIs outline how two or more parties will collaborate on a project. Here is a condensed LOI example for a Canadian joint venture:
Letter of Intent — Joint Venture
RE: Non-Binding Letter of Intent — Proposed Joint Venture Between [Party A] and [Party B]
Purpose. [Party A] and [Party B] intend to form a joint venture (the “JV”) for the purpose of [describe project: e.g., developing a commercial property, launching a product line, providing services in a specific market].
Capital Contributions. Party A shall contribute $[AMOUNT] and Party B shall contribute $[AMOUNT]. Additional contributions may be agreed upon by written consent of both parties.
Roles and Responsibilities. Party A shall be responsible for [operations/management/marketing]. Party B shall be responsible for [funding/technology/distribution].
Profit and Loss Sharing. Profits and losses shall be shared [50/50] [proportionate to capital contributions] as set out in the definitive JV agreement.
Governance. Major decisions shall require the unanimous consent of both parties. Day-to-day management shall be delegated to [Party A / a designated manager].
Term. The JV shall have an initial term of [X] years, renewable by mutual agreement.
Confidentiality (Binding). Both parties shall keep all information exchanged in connection with this LOI and the proposed JV strictly confidential.
Non-Binding. Except for the confidentiality clause, this LOI is non-binding. The obligations of the parties shall only arise upon execution of a definitive joint venture agreement.
LOI Sample #3: Commercial Lease
When negotiating a commercial lease, an LOI helps both landlord and tenant confirm key terms before committing to the full lease document. Here is a simplified LOI example letter:
Letter of Intent — Commercial Lease
Premises. [Address, Suite #, City, Province] — approximately [X] square feet of [office / retail / warehouse] space.
Lease Term. [5] years, with [one / two] option(s) to renew for additional [5]-year terms.
Base Rent. $[AMOUNT] per square foot per annum, net of operating costs, payable monthly in advance. Rent escalations of [X]% per annum or as adjusted by CPI.
Tenant Improvements. Landlord shall provide a tenant improvement allowance of $[AMOUNT] per square foot. Tenant shall be responsible for all improvements beyond the allowance.
Operating Costs. Tenant shall pay its proportionate share of building operating costs (estimated at $[AMOUNT] per square foot per annum).
Permitted Use. [General office / retail / restaurant / warehouse / specify].
Non-Binding. This LOI is intended solely for discussion purposes and does not constitute a binding lease. The terms are subject to negotiation and execution of a formal lease agreement.
LOI vs. MOU vs. Term Sheet: What’s the Difference?
These terms are often used interchangeably, but there are subtle differences in how they are typically used in Canadian business:
Common Mistakes When Drafting a Letter of Intent
Failing to clearly state which terms are non-binding. If you do not explicitly declare the commercial terms as non-binding, a Canadian court may find that the LOI creates enforceable obligations. Use clear, unambiguous language in every LOI.
Being too vague on key terms. An LOI that is too general provides no guidance for the formal agreement and wastes both parties’ time. Include specific numbers, dates, and conditions — even if they are expressed as ranges.
Omitting a confidentiality clause. Without binding confidentiality, the other party can share your offer details with competitors. Always include a confidentiality provision or attach a separate non-disclosure agreement.
Skipping the exclusivity clause. Without a “no-shop” period, the seller can use your offer as leverage to negotiate a better deal with another buyer while you spend money on due diligence and legal fees.
Not setting an expiration date. An LOI without a deadline can create indefinite expectations. Always include a clear expiration date, typically 30 to 90 days from the date of the letter.
💡 Best Practice: Have your lawyer draft or review the LOI before sending it. An LOI sets the negotiating position for the entire deal. A well-crafted LOI protects you from unintended obligations while demonstrating professionalism and seriousness to the other party. Consider also having a non-compete agreement ready for business acquisition situations where the seller will continue in the same industry.
Frequently Asked Questions About Letters of Intent in Canada
Is a letter of intent legally binding in Canada?
An LOI can be partially binding. The commercial terms (price, structure) are typically non-binding, but specific clauses like confidentiality, exclusivity, governing law, and expenses can be made binding. If the LOI does not clearly state which terms are non-binding, a court may enforce the entire document. Always use explicit binding/non-binding language.
What is the correct LOI format for a business deal?
A business LOI follows a standard business letter format and includes: identification of both parties, a description of the proposed transaction, key commercial terms (price, payment, structure), due diligence timeline, binding clauses (confidentiality, exclusivity), a non-binding disclaimer for commercial terms, governing law, expiration date, and signature blocks for both parties.
How is an LOI different from a contract?
An LOI is a preliminary document that outlines proposed terms before a formal contract is created. A contract is a definitive, fully binding agreement that includes all terms, representations, warranties, and covenants. The LOI leads to the contract — it does not replace it.
Can I walk away from a letter of intent?
Yes, you can walk away from the non-binding commercial terms of an LOI at any time without penalty. However, you remain bound by any binding provisions (such as confidentiality and exclusivity) even after withdrawing from the deal. Some courts have also found that parties owe a duty of good faith during LOI negotiations.
Who signs a letter of intent first?
Typically, the party proposing the deal (the buyer, tenant, or investor) drafts and signs the LOI first. The counterparty then reviews, negotiates any changes, and countersigns to indicate acceptance. Some LOIs are drafted collaboratively and signed simultaneously by both parties.
How long should an LOI be valid?
Most business LOIs are valid for 30 to 90 days. The timeline should provide enough time for due diligence and negotiation of the definitive agreement, but not so long that the deal loses momentum. An exclusivity period of 45 to 60 days is typical for business acquisitions.
What is the difference between an LOI and an MOU?
In Canadian practice, LOIs and MOUs serve similar purposes and are often used interchangeably. However, an MOU is more commonly used for collaborative arrangements (joint ventures, government partnerships), while an LOI is more typical for acquisitions and commercial transactions. An MOU may be more formal and detailed than an LOI.
Does an LOI need to be notarized in Canada?
No. A letter of intent does not need to be notarized to be valid in Canada. It simply needs to be signed by the relevant parties. However, having the LOI reviewed by a business lawyer before signing is strongly recommended — especially for transactions over $100,000.
Can an LOI be terminated early?
Yes. Either party can terminate the non-binding portions of an LOI at any time. However, the binding clauses (confidentiality, exclusivity) survive termination for their specified period. Some LOIs include a specific termination provision that allows either party to withdraw by providing written notice.
Where can I get a free LOI template for Canada?
Canada Business Lawyers provides free LOI templates for both real estate and business transactions. Visit our template library to download, or book a free consultation with a lawyer to have a custom LOI drafted for your specific deal.
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