Letters of Intent for Commercial Leases in Ontario

A letter of intent, often shortened to “LOI,” is a short document used to outline the broad shape of a proposed commercial lease before the parties invest time and legal fees drafting the actual lease. It typically summarizes the rent, the term, the space being leased, and any major conditions the deal depends on, giving both the landlord and the prospective tenant a chance to confirm they are generally aligned before the formal commercial lease agreement is drafted in full.

In Ontario, there is no required form or statutory template for a letter of intent — it is purely a creature of negotiation and commercial practice. Some LOIs run to a single page covering only the essentials, while others are several pages long and address a wide range of conditions, from financing to zoning approval to the scope of any leasehold improvements. The level of detail generally scales with how complex the proposed deal is.

It is worth understanding from the outset that an LOI is not the lease itself. It is a preliminary document meant to narrow the gap between the parties before the real legal drafting begins, and it is usually written so that most of its content does not, on its own, create a binding obligation to actually enter into a lease.

While there is no fixed checklist, most commercial letters of intent in Ontario touch on a similar set of points. These usually include the proposed base rent and any escalation structure, the length of the lease term and any renewal options, the size, location, and configuration of the space, and the permitted use the tenant intends to operate under.

Beyond the basic deal terms, an LOI frequently addresses a handful of major conditions that could make or break the transaction — for example, the tenant’s need to secure financing, obtain a municipal licence, or confirm the space can be used for a particular purpose under local zoning. It may also note who is responsible for any tenant improvement allowance, whether a personal guarantee will be required, and a general timeline for moving from the LOI to a signed lease.

Because an LOI is meant to be a quick, high-level summary rather than a full legal document, it typically does not attempt to resolve every detail that a complete lease would cover — matters like default and cure periods, assignment rights, or detailed operating cost mechanics are usually left for the lease itself rather than spelled out in the LOI.

One of the most important things to understand about a letter of intent is that it is usually, though not always, non-binding with respect to the core business terms. Most LOIs include language stating that the proposed rent, term, and other deal points are “subject to” a final, fully negotiated lease, meaning neither party is legally committed to actually sign a lease on those terms simply by signing the LOI.

This distinction matters because it gives both sides room to negotiate further, raise issues, or walk away if something material changes during the drafting of the full lease — without either party being in breach of a binding agreement. It also means a signed LOI, by itself, generally does not guarantee that a deal will close, even if both sides intend to move forward in good faith at the time it is signed.

Even though the main business terms in an LOI are usually non-binding, it is common for certain clauses within the very same document to be drafted as binding obligations. The two most frequent examples are confidentiality clauses and exclusivity-to-negotiate clauses, sometimes called “no-shop” provisions.

A confidentiality clause typically prevents either party from disclosing the proposed rent, deal terms, or the existence of the negotiation itself to third parties, protecting both the landlord’s broader leasing strategy and the tenant’s competitive position. An exclusivity-to-negotiate clause commits the landlord to pausing discussions with other prospective tenants for a defined period — often a few weeks — while the parties work toward a signed lease, giving the tenant some assurance that the space will not be leased out from under them mid-negotiation.

Because these clauses carry real legal weight, it is worth reading them just as carefully as any lease term. A tenant who breaches a confidentiality clause, or a landlord who breaches an exclusivity commitment, can potentially face consequences even if the underlying lease deal never actually closes.

Negotiating and drafting a full commercial lease can involve significant legal time and expense, particularly for larger spaces or more complex deals. A letter of intent lets both sides confirm the fundamental terms — rent, space, term, and key conditions — are broadly acceptable before that investment is made, which can save considerable time and money if the deal would have fallen apart over a basic mismatch anyway.

An LOI can also surface potential deal-breakers early. If a tenant’s intended use conflicts with an existing exclusivity clause held by another tenant, or if the landlord cannot accommodate the timeline a tenant needs, it is far better to learn this at the LOI stage than after a full lease has been drafted. For landlords, an LOI can also provide useful documentation to show internally, or to a lender, that a prospective tenant is seriously interested in the space.

Once an LOI is signed, the next step is usually for the landlord’s lawyer to prepare a full lease draft reflecting the agreed terms, which the tenant and their own advisor then review in detail. This is typically when issues not addressed in the LOI — such as default and cure periods, assignment rights, or the scope of a personal guarantee — are negotiated for the first time.

It is common for some give-and-take to occur between the LOI and the final lease, since the LOI is only a summary and the full lease inevitably raises points the LOI did not anticipate. What should not change, generally, are the fundamental deal terms both sides agreed to in the LOI, unless something material has genuinely come to light in the meantime. A tenant who finds the lease draft significantly departing from the LOI on a key point is generally within their rights to push back and renegotiate.

Because an LOI sets the tone and the baseline terms for everything that follows, it is worth treating its negotiation seriously rather than signing quickly just to “get the deal moving.” Once a landlord has agreed to a rent figure or a term length in an LOI, it can be harder, as a practical matter, to negotiate a materially better position later, even though the LOI itself is not strictly binding on those points.

It is also worth being precise about which clauses are intended to be binding and which are not, rather than leaving the question to inference. Ambiguous wording around confidentiality or exclusivity has been a source of real disputes, and it is far cheaper to clarify intent at the drafting stage than to litigate it later. More general guidance on how commercial lease terms are typically structured is available on the Commercial Leases hub, and specific questions about a proposed LOI can be directed through our contact page.