A letter of intent is, in plain language, a statement of the intent of the parties to complete a transaction. It identifies key terms that will govern the parties during that period. In other words, a letter of intent sets out the parameters of a particular transaction.
Generally, a letter of intent confirms that the parties are serious about the proposed transaction and have decided to hammer out the details in the near future. Some view a letter of intent as a draft proposal, while others see it as evidence of engagement between the parties.
A letter of intent need not be in the form of an actual letter. Often, it takes the form of an executed agreement or a memorandum. Regardless of the form, a good letter of intent should include the positions of the parties, any agreed upon elements of the transactions, any terms to be negotiated in the near future, undertakings of the parties, as well as any conditions to the completion of the transaction.
Whether a letter of intent is legally binding depends largely on the wording of its contents and the surrounding circumstances.
The law in Ontario generally views a letter of intent as a non-binding record of the parties’ intention to negotiate further. However, if both parties acknowledge that all essential terms to the transaction are agreed upon at the time of signing of the letter, the letter of intent may nonetheless create a binding legal obligation for the parties to carry out the transaction as contemplated.*
Therefore, it’s a good idea to have the letter of intent drafted by a qualified lawyer to ensure that there won’t be surprises down the road.
If you require assistance, please do not hesitate to contact me at 416-433-5531.
*See e.g. Wallace v. Allen et. al. (2008), 93 O.R. (3d) 732 (C.A.)
