At Ambassador Law Corporation, one of the most common questions we hear from business clients comes up before a deal is even signed: are letters of intent actually enforceable? It’s a fair question, because the answer isn’t a simple yes or no. Whether a letter of intent is legally binding in BC business transactions depends heavily on how it’s drafted, what it says, and what the parties understood when they signed it.
What a Letter of Intent Actually Does
A letter of intent (LOI) is a document that outlines the basic terms two parties have agreed to explore before a formal contract is in place. It signals intent and sets expectations. In corporate and commercial deals, LOIs are common in:
- Business acquisitions and share purchase transactions
- Joint venture formations
- Commercial lease negotiations
- Partnership arrangements
- Supplier or distribution agreements
The problem is that many business owners treat an LOI as a handshake on paper. It feels preliminary, so it gets less scrutiny. That assumption can be costly.
When an LOI Becomes Enforceable
Canadian courts, including those in British Columbia, look past the label on a document and examine its substance. An LOI can create binding obligations even when the parties intended it to be preliminary. Courts will consider:
- The language used: words like “shall,” “agrees to,” and “commits” carry more legal weight than “intends to” or “proposes.”
- The specificity of the terms: the more detailed the LOI, the more it resembles a contract.
- The conduct of the parties: if both sides acted on the LOI as though it were binding, courts may treat it that way.
- Whether key terms are still outstanding: an LOI that leaves major deal points unresolved is harder to enforce as a contract.
In determining whether a LOI becomes enforceable or not, the courts may apply an objective standard, asking what a reasonable person would understand the document to mean, not what either party privately intended.
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Clauses That Are Almost Always Binding
Even in LOIs that are explicitly non-binding overall, certain provisions typically carry full legal force from the moment the document is signed. These include confidentiality clauses, exclusivity provisions, no-shop agreements, and cost allocation clauses.
Confidentiality clauses protect sensitive business information shared during negotiations. Exclusivity provisions prevent one party from negotiating with competitors during a defined period. No-shop agreements restrict the seller from soliciting other offers. Cost allocation clauses specify who pays for due diligence, legal fees, or other deal costs if negotiations collapse.
These provisions serve a real commercial function during the negotiation phase, which is why courts enforce them even when the LOI as a whole is meant to be non-binding.
How to Protect Yourself When Signing an LOI
Be explicit about what is and isn’t binding
If your LOI is intended to be non-binding, say so clearly. A well-drafted LOI will identify which provisions create binding obligations and which are expressions of intent only. Vague language in the middle creates exactly the kind of ambiguity that ends up in litigation.
Don’t skip legal review because the document “isn’t the real contract”
This is where many business clients get into trouble. Because an LOI feels like a stepping stone rather than a destination, it often gets signed without the same care that goes into the final agreement. The LOI shapes the negotiation that follows, and its terms can become the baseline for everything that comes after.
Define what happens if negotiations fall through
An LOI that addresses termination, cost-sharing, and the return of confidential information gives both parties a clear exit if the deal doesn’t close. Without those provisions, a failed negotiation can turn into a dispute over obligations that were never clearly spelled out.
Watch your timeline
Exclusivity and no-shop clauses need defined timeframes. An open-ended restriction on negotiating with other parties can leave one side exposed for far longer than intended.
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The Role of Good Drafting
The enforceability of an LOI is, in most cases, a drafting problem. Courts are not trying to find ways to make these documents binding or non-binding. They read the language as written and apply established contract principles. That means the outcome often turns on word choices, clause structure, and whether the document clearly separates binding from non-binding provisions.
Getting that right at the LOI stage saves significant time, cost, and uncertainty later in the transaction.
Work With Someone Who Understands Business Agreements
If you’re heading into a business transaction in BC and an LOI is on the table, don’t treat it as a formality. At Ambassador Law Corporation, our corporate and commercial law practice is built on helping clients understand exactly what they’re agreeing to before they sign. If you have an LOI you’d like reviewed, or you’re preparing to negotiate one, call us at 604-859-4825 to talk through your situation.