A letter of intent is the first document a buyer and a seller sign in a pharmacy sale. It is usually two to four pages, most of it is non-binding, and it takes one to two weeks to negotiate. It also sets the frame for everything that follows: the price, what the price includes, how long the buyer has to look under the hood, and whether anyone else can talk to the seller while they do. Get the LOI right and the purchase agreement is a drafting exercise. Get it wrong and the deal reopens on every point six weeks later.
This guide explains each clause of a Canadian pharmacy LOI, what buyers and sellers each push for, and where the usual compromises land. At the end there is a template: a commercial term sheet with placeholders that you can fill in and take to your lawyer. It covers community pharmacies in every province; the structure is the same for long term care and compounding pharmacies, with the differences noted where they arise.
PharmacyBroker.ca is run by pharmacists, not lawyers. The template records business terms. Your lawyer turns them into the agreement.
Where the LOI sits in the deal
In a managed sale the sequence is: confidential marketing, buyer qualification and a signed non-disclosure agreement, a Confidential Information Memorandum, a buyer visit, then a letter of intent. Due diligence starts when the LOI is signed, the purchase agreement is drafted during due diligence, and closing follows College approval of the ownership change. The timeline guide walks through all seven stages.
Two things follow from the sequence. First, by the time the LOI is written the buyer has seen normalized financials and a summary of the lease and the staff, so the LOI should reflect real numbers, not a guess. Second, the LOI is signed before the buyer has verified anything, which is why the commercial terms stay non-binding and the protective terms become binding.
The clauses, one at a time
1. The parties
Name the seller (usually the corporation that owns the pharmacy, with the shareholder as a party if a share sale is contemplated) and the buyer. Buyers often sign through a corporation to be incorporated, which is fine at LOI stage if the LOI says who stands behind it. Provincial ownership rules apply to the eventual owner, not the LOI signatory: in BC the majority of the direct owner’s directors must be BC registered pharmacists, and in Ontario a majority of directors and of each class of shares must be held by pharmacists. If the buying entity does not yet meet the rule, say when it will.
2. What is being bought: assets or shares
State it plainly: an asset purchase (the buyer’s corporation buys the pharmacy’s assets from the seller’s corporation) or a share purchase (the buyer buys the shares of the corporation that owns the pharmacy). The choice drives tax, liability, the lease, the College filing and the purchase agreement, and it is hard to switch later without reopening price. Our guide to asset sale versus share sale covers the trade offs. If the parties have not decided, the LOI can say “asset purchase, unless the parties agree a share purchase on terms to be negotiated”, with the price stated for the asset case.
For an asset purchase, list what is included: equipment and fixtures, leasehold improvements, patient records and prescription files, goodwill and the business name, telephone numbers and domain, software licences where transferable, the wholesaler account where transferable, and the assigned lease. List what is excluded: cash, receivables, the seller’s corporate records, personal items, and any vehicle or contract the buyer does not want.
3. Purchase price and what it includes
State a single number, in Canadian dollars, and state what it is for. The Canadian convention is that the price covers the operating business (equipment, fixtures, leaseholds, patient files and goodwill) on a cash free, debt free basis, and that inventory is purchased separately at cost. Say both things in the LOI. A buyer who assumed inventory was included and a seller who assumed it was not are, at that moment, several hundred thousand dollars apart.
If the price is tied to a figure the seller has presented, say so: “based on normalized EBITDA of $X for the twelve months to [date] as presented in the CIM”. That line gives the buyer a basis to adjust if due diligence shows a different number, and gives the seller the argument that a verified number means no adjustment. How pharmacies are priced (most community pharmacies sell for 4x to 6x normalized EBITDA plus inventory), and the provincial baselines we work with, are in the valuation guide and the multiples table.
Initial offers in the deals we see often come in 10 to 15 percent below asking. The LOI records where the parties landed, not where they started.
4. Inventory
Three decisions: how inventory is valued, who counts it, and whether there is a cap.
Valuation is at the seller’s cost, usually the wholesaler’s invoice cost less any volume rebate the parties agree to account for. Expired, short dated (the parties pick a cut off, commonly three to six months), damaged and unsaleable stock is excluded. The count is done by an independent inventory service or jointly by both parties on the day before closing or on closing day. A cap, for example “inventory not to exceed $X without the buyer’s consent”, protects a buyer whose financing was approved on a stated figure; an adjustment clause (“if inventory exceeds $X, the excess is paid over 90 days”) is the usual alternative.
In the deals we see, inventory commonly adds $100,000 to $400,000 to the price of a community pharmacy. Controlled substances are counted and transferred under the record keeping rules in the federal Controlled Substances Regulations and the College’s requirements; the LOI can simply say the transfer will comply.
5. Deposit
State the amount, when it is paid, who holds it (usually one of the lawyers, in trust) and when, if ever, it becomes non-refundable. Deposits of about 5 to 10 percent are common in the deals we see. A refundable deposit that is returned if a condition fails is the usual starting point. Sellers who want a stronger signal ask for the deposit to go non-refundable once due diligence ends, subject only to the College and lease conditions. Buyers resist that until they have seen the financials.
6. Due diligence period
Give the buyer a defined period, 30 to 60 days in most of the deals we see, starting from the date the seller delivers the agreed information. Attach or reference the list of what will be provided (our document list for a pharmacy sale sets out the usual items, and the template below includes it as Schedule A). Say what access the buyer gets to the premises and to staff, which is usually none until late in the process and then only with the seller present.
Patient data before closing is aggregated and de identified only: prescription counts by month, payer mix, top prescriber shares, days supply mix. Identifiable patient records transfer at closing, under the privacy law that applies to the pharmacy. The LOI should say so; it is a condition both sides’ lawyers will expect.
7. Exclusivity
The buyer asks the seller not to solicit or negotiate with anyone else while due diligence runs. It is one of the clauses usually made binding. Buyers ask for 90 to 120 days; sellers prefer 30 to 60; 60 to 75 days with an extension if the buyer is proceeding in good faith is a common landing point in our experience. Tie the length to the due diligence period and the financing deadline so that exclusivity does not outlive the work it protects.
A seller should grant exclusivity only to a buyer whose financing is realistic. Ask for a lender’s letter of interest or proof of funds before signing. Our financing guide explains what the bank will need from the buyer, and the LOI can require the buyer to have submitted a complete application within a set number of days.
8. Confidentiality
Usually a short clause confirming that the NDA already signed continues to apply, that the LOI and its terms are confidential, and that neither party will announce the transaction before closing without the other’s consent. The NDA itself should already cover non-solicitation of staff. Our guide to running a confidential pharmacy sale covers what the NDA needs to say and when staff, the landlord, the wholesaler and the College learn of the sale.
9. Conditions
List what has to happen for the deal to close. The usual set:
- The buyer is satisfied with due diligence by the end of the period.
- The buyer has a financing commitment by a stated date (often 30 to 45 days from signing).
- The landlord consents to assignment of the lease (asset purchase) or to the change of control (share purchase), on terms acceptable to the buyer; many leases allow the landlord to withhold consent or to re-negotiate, so this condition is real. What landlords can ask for, and what to do when they are slow, is in when the landlord says no, or says nothing.
- The College approves the change of ownership: at least 30 days before closing for a change of direct owner in BC, at least 45 days before opening under the new owner in Ontario, where a new Certificate of Accreditation is issued, and the licensee and proprietor process in Alberta. The purchase agreement will set the exact mechanics; the LOI should at least make College approval a condition and fix who files what.
- Key contracts are assigned where the buyer wants them (long term care or clinic agreements, banner agreement, wholesaler agreement).
- No material adverse change in the business between signing and closing.
Each condition should name who it benefits and by when it must be satisfied or waived. A condition without a date is an open door.
10. Vendor transition and employment
State whether the seller will work in the pharmacy after closing, for how long, how many hours, and whether paid. Transition periods in the deals we see run from a few weeks to several months, and the vendor’s obligations during the period (introductions to prescribers, long term care homes and key patients, training on the dispensary system) are worth listing. If part of the price depends on the vendor’s conduct after closing, this is where it is flagged, with the detail left to the purchase agreement.
11. Non-competition and non-solicitation
The buyer will want the seller not to open or work in a competing pharmacy within a radius for a period, and not to solicit staff or patients. State the radius and the term in the LOI so there is no surprise in the agreement. Enforceability of non-competes is a legal question that varies by province and by the facts; what the LOI does is record what the parties intend.
12. Holdbacks, earnouts and price adjustments
If any part of the price is deferred, say so now. A holdback kept in trust for a period after closing to cover undisclosed liabilities, an earnout tied to prescription volume or services revenue after closing, or a working capital adjustment all change what the seller actually receives and when. These structures are more common in 2026 than they were a few years ago, especially where a pharmacy’s services revenue depends on one pharmacist or where funding rules are changing. A seller should know the headline price and the cash at closing as two separate numbers before signing.
13. Purchase price allocation
For an asset purchase, the price is allocated between asset classes (equipment, leaseholds, goodwill, patient files) for tax purposes. Buyers and sellers have different preferences. The LOI can say the parties will agree an allocation in the purchase agreement, or set it out if the parties have already agreed. Each side’s accountant should see it before it is fixed.
14. Costs and target closing date
Each party normally pays its own legal and accounting costs. Some LOIs make the buyer responsible for the seller’s costs if the buyer walks away for a reason other than a failed condition. State a target closing date that allows for due diligence, the purchase agreement, the lease consent and the College’s lead time; in the deals we see, 90 to 120 days from LOI signing is a realistic target for a community pharmacy.
15. What binds
Say which clauses are binding: typically confidentiality, exclusivity, costs, governing law and, if included, good faith negotiation. Say that everything else is a statement of intent that does not create an obligation to buy or sell. This clause is the one most often read by a judge, so it is the one to have a lawyer draft.
What sellers push for, what buyers push for
| Term | Seller’s position | Buyer’s position | Usual landing point in our experience |
|---|---|---|---|
| Price basis | Fixed, based on presented normalized EBITDA | Subject to verification in due diligence | Stated basis, with adjustment only for a verified difference |
| Inventory | At cost, no cap | Capped at the figure the lender approved | At cost, capped or with a payment plan for the excess |
| Deposit | 10 percent, non-refundable after due diligence | 5 percent, refundable until all conditions are met | 5 to 10 percent, refundable until due diligence ends |
| Due diligence | 30 days | 60 to 90 days | 30 to 60 days from delivery of the information |
| Exclusivity | 30 to 60 days | 90 to 120 days | 60 to 75 days with a good faith extension |
| Financing condition | Short deadline, proof of pre-approval first | Long deadline | 30 to 45 days, with evidence the application is in |
| Vendor transition | Short, paid | Long, unpaid or at a token rate | A few weeks to a few months, defined hours |
| Non-compete | Narrow radius, short term | Wide radius, long term | Set by the local market; recorded in the LOI |
Mistakes we see
Signing an LOI with no price basis. A bare number invites a renegotiation the moment due diligence turns up anything. Tie the number to the figure it was built on.
Leaving inventory vague. “Plus inventory” without a method, a count procedure and a cap is the most common cause of a closing day argument.
Granting exclusivity to an unfinanced buyer. Sixty days of exclusivity to a buyer whose bank has not seen the file can cost a seller the other buyers who were ready.
Conditions without dates. Every condition needs a date and a party who can waive it.
Forgetting the College. Ownership change approval has a lead time in every province. An LOI with a closing date that does not allow for it will slip.
Treating the LOI as the agreement. It is a frame. The purchase agreement is where representations, warranties, indemnities and the transfer mechanics live. The LOI should be consistent with what the agreement will say, not a substitute for it.
The template
The download is a commercial term sheet laid out clause by clause as above, with placeholders in square brackets and short drafting notes for each clause. It is written for a Canadian community pharmacy and works for either an asset or a share purchase. Fill it in, agree it with the other side, and give it to your lawyer to turn into the signed LOI and then the purchase agreement.
Download the pharmacy letter of intent template (Word)
It is not legal advice, and PharmacyBroker.ca is not a law firm. Terms that work in one province or one deal do not work in all of them. Have your lawyer review it before anyone signs.
If you are selling and want the LOI stage to arrive with more than one buyer at the table, that is the point of a managed sale: see how we sell a pharmacy. If you are buying and want a pharmacist to read the seller’s package before you sign, see how we work with buyers, or contact us.