Letters Of Intent: When “Non-Binding” Language Is Not Enough
April 22, 2026
BY: IAN ANDREW LAW
Letters of intent are often used to move deals forward without fully committing the parties. That flexibility is part of their appeal.
It is also part of the danger. A document labelled “non-binding” can still contain binding obligations, practical constraints, and enough ambiguity to generate a serious dispute if the transaction later fails.
Key Takeaways
• A non-binding label does not do all the legal work.
• LOIs often contain mixed binding and non-binding elements.
• Good-faith risk in preliminary agreements is an emerging area that should be treated cautiously.
• Termination, discretion, costs, confidentiality, and exclusivity should be addressed expressly.
• Precision in an LOI often reduces litigation risk later.
Why LOIs Create Unusual Risk
A letter of intent often sits in the middle ground between a casual business discussion and a final definitive agreement. That is workable when the parties are clear about which obligations are binding, which are not, and how the process can end. The trouble starts when the document uses broad business language but fails to draw those lines with precision.
At that point, a failed transaction can turn into a fight about what obligations existed during the failed process itself.
What The Ontario Case Law Suggests
The 2025 Emon decision is important here, but it needs to be used carefully. The case suggests that good-faith or honest-performance arguments may be raised in the context of a partially non-binding letter of intent. At the same time, the court did not finally settle the broader doctrinal issue and found no breach whether or not the duty applied.
That makes Emon a risk signal, not a clean rule. The safer commercial takeaway is that parties should not rely on uncertainty to protect them.
What Better LOI Drafting Usually Covers
A stronger LOI usually identifies binding and non-binding provisions expressly. It explains confidentiality, exclusivity, due diligence access, expense responsibility, termination mechanics, governing law, and how either side may walk away. If the parties want freedom to discontinue discussions for essentially commercial reasons, the language should make that operational reality clear rather than leaving it to implication.
Discretion should also be connected to a defined process where possible.
Why This Matters To Business Owners
Preliminary deal documents often feel low-risk because the definitive agreement is still to come. In practice, that is exactly why clarity matters. The more preliminary the document, the more room there is for parties to later disagree about what it was supposed to do.
An LOI can be useful and commercially efficient. It becomes much riskier when the parties assume that calling it non-binding solves questions the document itself never answers.
Sources
• Dr. Michael Emon Dentistry Professional Corporation v. Alexander Sevo Dentistry Professional Corporation et al., 2025 ONSC 4961.
• Bhasin v. Hrynew, 2014 SCC 71.
• C.M. Callow Inc. v. Zollinger, 2020 SCC 45.
This article is for general information purposes only and does not constitute legal advice. Reading this article does not create a solicitor-client relationship. If you require advice specific to your situation, contact my office.