Letter of Intent Template | Wallace v. Allen Compliant

A letter of intent is a written summary of the key commercial terms of a proposed transaction, usually addressed by one party to the other and signed by both once the broad strokes are settled. It sits between a casual negotiation and a binding contract. The document typically states the purchase price or valuation, the assets or shares involved, the proposed closing date, the conditions that must be met before closing, and the period during which the parties will negotiate exclusively. Canadian practitioners also use the labels term sheet and memorandum of understanding, and while the three overlap, an LOI is the form most often used in a business purchase or investment.

The label on the page does not decide whether it binds you. A document headed "Letter of Intent" can still create an enforceable contract if its wording and the parties' conduct show they meant to be bound, which is the single most misunderstood feature of these documents. The opposite is also true: a thorough term sheet expressly marked non-binding remains a negotiating tool with no force of its own. What controls is intention, read from the whole document and the surrounding behaviour, not the title at the top. This is why a letter of intent deserves the same care as the agreement it precedes, a point we return to under the legal framework below and one that founders preparing a shareholder agreement for a Canadian corporation should keep in mind.

There is no statute in Canada called the "Letter of Intent Act." The enforceability of an LOI is governed by the common law of contract in the common-law provinces and by the Civil Code of Québec in Quebec, and the analysis turns on ordinary contractual principles: offer, acceptance, consideration and, above all, the intention to create legal relations. The leading authority is Wallace v. Allen, 2009 ONCA 36, where the Ontario Court of Appeal held a letter of intent to be fully binding even though it contemplated a later, more formal share purchase agreement. The court read the document as a whole and gave weight to contractual phrasing such as "this agreement" and "it is agreed," and to the conduct of the seller, who announced his retirement and introduced the buyer as the new owner. The lesson practitioners drew from it is blunt: contractual language plus contractual behaviour can bind you regardless of your private intention to stay non-committal. You can read the full reasons in the official report of Wallace v. Allen on CanLII, available through the Canadian Legal Information Institute decision database.

Later cases sharpened the point. In Seelster Farms Inc. v. Ontario, 2020 ONSC 4013, the court confirmed that explicit contractual wording is not strictly necessary so long as the hallmarks of a contract, an offer, an acceptance and consideration, appear in the document and the parties' dealings. Separately, the Supreme Court of Canada in Bhasin v. Hrynew, 2014 SCC 71, established a general organizing principle of good faith and a duty of honest performance that applies to all contracts, and C.M. Callow Inc. v. Zollinger, 2020 SCC 45, extended that duty to cover half-truths and misleading silence during performance. Where an LOI does create binding obligations, even narrow ones such as exclusivity or confidentiality, these duties apply. As for form, the Statute of Frauds still requires a sufficient written memorandum for certain dealings such as transfers of land, and electronic signatures are valid for most commercial LOIs under PIPEDA and the provincial electronic commerce acts.

The most common trigger is the purchase or sale of a business, where the buyer wants to confirm price and structure before paying for due diligence, lawyers and a quality-of-earnings review. An LOI lets both sides commit to a number and a timetable while leaving the heavy contract drafting for later. Investment rounds are the next frequent scenario: a startup and a venture investor sign a term sheet fixing valuation, the size of the round and key governance rights before founders' counsel prepares the subscription and shareholder documents. Joint ventures and strategic partnerships use the LOI to set out each party's contribution, the split of profits and the governance of the new venture before the definitive agreement is negotiated, often alongside a memorandum of understanding for a Canadian organisation where the relationship is collaborative rather than a clean purchase.

Commercial supply and distribution deals form the rest of the spectrum. A manufacturer and a distributor will often sign a short letter confirming volumes, territory and an exclusivity window so neither side shops the deal elsewhere while terms are finalised. Two edge cases deserve flagging. First, a commercial lease of significant premises is sometimes preceded by an LOI or offer to lease, and here the document can bind more readily than the parties expect, much like an offer to purchase real estate in Canada. Second, where the LOI touches an asset purchase that includes real property, the Statute of Frauds and the surrounding conduct can convert a "non-binding" letter into an enforceable obligation, so the exclusivity and confidentiality terms should be drafted to stand on their own.

• The statement of binding and non-binding terms is the spine of the document. Our template separates the commercial summary, which the parties intend as non-binding, from the clauses meant to bind immediately, such as confidentiality, exclusivity and the allocation of negotiation costs. This express carve-out is the single most effective protection against an unintended contract under Wallace v. Allen.
• The description of the transaction and price sets out exactly what is being bought or invested in, whether shares or assets, the purchase price or valuation, and the proposed payment structure. Vague figures invite disputes, so the clause uses defined terms and a clear formula rather than placeholder ranges.
• The exclusivity or no-shop clause stops the seller from negotiating with other suitors for a fixed window, commonly thirty to ninety days. Because this clause is intended to bind, it is drafted as a standalone obligation with its own remedy, separate from the non-binding commercial terms.
• The confidentiality undertaking protects the sensitive financial and operational information disclosed during due diligence. Many parties prefer to keep confidentiality in a separate agreement so it operates in a silo without compromising the non-binding nature of the rest of the letter, and our template supports either approach.
• The conditions and due diligence clause lists what must happen before either side is obliged to proceed, including satisfactory financial review, board or shareholder approval, third-party consents and financing. It also fixes the due diligence period and access arrangements.
• The governing law and dispute clause names the province whose law applies and the forum for any dispute, which matters because a letter silent on governing law can trigger conflict-of-law arguments in a cross-provincial deal.

Ontario is where most of the binding-LOI case law originates, and Wallace v. Allen, 2009 ONCA 36, together with Seelster Farms Inc. v. Ontario, 2020 ONSC 4013, sets the benchmark for the whole common-law country. Ontario courts read an LOI as a whole and look closely at the parties' conduct after signing, so a seller who behaves as though the deal is done risks being held to it. Drafters working under Ontario law should state in terms that the commercial summary is non-binding and that obligations crystallise only on a definitive agreement, and should keep their post-signing conduct consistent with that position.

British Columbia applies the same common-law principles, and BC practitioners often pair the LOI with a separate confidentiality agreement on the reasoning approved in the case law, so the protective term survives even if the LOI itself is found non-binding. Where the transaction involves a Business Corporations Act (BC) company, the LOI should anticipate the consents and resolutions the statute requires before a share transfer can close.

Alberta offers a useful counterpoint. In Alberta Sussex Insurance Agency Inc. v. Canada Brokerlink Inc., 2006 ABQB 608, the court found a letter of intent unenforceable precisely because the essential terms were too uncertain and incomplete to form a contract. Uncertainty cuts both ways: it can save you from an unintended bargain, but it also means a poorly drafted LOI gives you nothing to enforce when you want the deal to proceed. Alberta drafters should therefore be deliberate about which terms are settled and which remain open, recording that distinction clearly. Across all common-law provinces the good-faith duty from Bhasin v. Hrynew, 2014 SCC 71, applies to any binding obligation in the letter, a discipline that carries over to documents such as a non-disclosure agreement under Canadian common law.

You start by identifying the parties and the type of transaction, whether a share purchase, an asset purchase, an investment or a partnership, because the template adjusts the commercial summary to match. From there you set out the price or valuation and the proposed structure, using the guided fields for payment terms, holdbacks and any earn-out. The form then walks you through the binding clauses, prompting you to confirm the exclusivity window, the confidentiality terms and who bears negotiation costs, and it keeps these visibly separate from the non-binding commercial summary so the distinction is unmistakable on the face of the document. Next you fix the due diligence period, the conditions to closing and the target signing date for the definitive agreement. You then select the governing province, which sets the applicable law and the dispute forum. A short review screen lets you confirm every defined term lines up before you generate the file, and the same guided approach underpins our commercial contract templates for Canadian businesses. Download in Word to keep editing or in PDF to sign and send.

The costliest error is treating an LOI as harmless because it is "just a letter." Wallace v. Allen is the standing warning that contractual phrasing combined with deal-confirming behaviour can bind you to terms you thought were provisional, so sellers who start acting like the deal is closed, announcing departures or handing over keys, hand the other side a powerful argument. A second frequent mistake is the mirror image: drafting the whole document as "non-binding" while leaving exclusivity and confidentiality unprotected, which means a counterparty can walk away and shop the deal with your numbers in hand. The protective clauses should always be drafted to bind even when the commercial terms do not.

Three further traps recur in practice. Parties leave the governing law blank, then argue about which province's rules apply when the deal sours. They use loose price language, a range rather than a figure or a formula, which Alberta Sussex shows can sink enforceability where you wanted certainty. And they forget that the Statute of Frauds and a record of conduct can turn a property-related LOI into a binding memorandum. Match your written words to your real intention, and match your conduct to your written words. The two together decide the outcome far more often than the heading you chose.