Does an LOI protect me if the buyer never intended to close?

A letter of intent protects a seller only as far as its own words and the governing law reach. If it says price and terms are not binding, a buyer who walks away may not breach anything in it. The protection then comes from the clauses the letter does make binding and, in Québec, from the Civil Code’s duty to act in good faith. This page cannot say whether a particular buyer acted improperly. That turns on the facts and the wording.

Which clauses bind

Read the LOI for any clause stated to be binding. Confirm whether confidentiality, exclusivity (a promise not to negotiate with others), expense sharing or a fee on withdrawal are binding, and for how long. Compare it with a term sheet to see how the two differ, and see what happens between the LOI and closing.

Good faith in Québec

The Civil Code of Québec requires every person to exercise civil rights in accordance with good faith (art. 6), forbids exercising a right with intent to injure another or in an excessive and unreasonable manner (art. 7), and requires the parties to conduct themselves in good faith both when an obligation arises and when it is performed or extinguished (art. 1375). Art. 1457 adds a duty to abide by the rules of conduct so as not to cause injury to another. Other provinces apply their own contract law, which this page does not cover.

Protect your information and test the buyer

Whatever the LOI says, limit what you share until the buyer has shown it can fund the deal. BDC lists a letter of intent and an expected closing date among what it needs for a business purchase loan application, so ask how the buyer is financing it. If you hand over personal information about customers or staff, PIPEDA s.7.2(1) contemplates an agreement requiring the recipient to return or destroy it within a reasonable time if the transaction does not proceed. The CIPO notes that a trade secret loses its business value once made public.