Is a handshake deal before the LOI worth anything?

You and a buyer shake on a number, and no letter of intent (LOI) exists yet. Is that a deal? It helps to split the question in two: whether the law treats a spoken agreement as a contract, and whether what you agreed covers enough to matter. The first depends on the law of your province. The second depends on how much was actually said.

Can a verbal agreement bind?

Éducaloi, Quebec’s public legal-information service, explains that a contract is formed when the parties have agreed on what each is to do, and that most contracts do not have to be in writing: a verbal agreement or an email exchange is enough. It adds that certain contracts must be in writing or meet other conditions to be valid, and that it is often a good idea to have a written contract even where one is not required. That is Quebec guidance. Other provinces apply their own law, including rules on which agreements must be in writing, so ask a lawyer where you are.

What a handshake leaves open

BDC says an LOI sets out a price range, subject to amendment, and the terms of payment, and that the final price is determined only once due diligence is complete. A handshake that covers only a headline figure leaves out those terms. It also leaves out the deal structure and what happens if due diligence turns something up. BDC adds that an LOI is not a binding offer, but it anchors the transaction terms to some degree.

What the written LOI adds

BDC’s guide to the LOI says it is not intended to be fully binding unless expressly stipulated. Where the document provides for it, though, it can create binding obligations on one party or the other, particularly on confidentiality and exclusivity. BDC says it is customary to sign a confidentiality agreement and write a letter of intent to pursue discussions with the seller. The written version is where you decide what binds and what does not.