After you’ve decided to sell, you’ve likely engaged a law firm to help prepare your practice for sale.
They’ll cover things like gathering due diligence documents and info from you (to facilitate a smooth sale), reviewing the corporate minute book to help make sure you can take advantage of the capital gains exemption, and reviewing your employee situation. And if they’re dental lawyers who ALSO sell practices like us, they can give you an idea of the market and connect you with an independent dental appraiser.
Next up after running an open house and finding a buyer comes the offer stage.
An offer is typically called a Letter of Intent or “LOI”. It’s typically a ~5-page document that outlines the key terms that a seller would agree to sell and a buyer would agree to buy. It covers the bare bones of a deal and isn’t typically enforceable to close a deal because it’s incomplete (it’s missing too many details).
The other reason you can’t close a deal based on an LOI is that it makes the completion of the deal largely conditional. Meaning that the buyer can walk away – even unscathed – after weeks and months of tying up the seller IF conditions in their favour are NOT met or satisfied or extended or waived.
YIKES!
Those conditions in favour of the buyer typically include: legal, financial and practice due diligence, getting a satisfactory lease in place (if the space is being rented) and getting bank financing on favourable terms.
HERE COMES THE EXCITEMENT… RIGHT?
Now despite an LOI being incomplete and conditional and thus not capable of closing a deal, when a selling dentist receives one or more LOIs, they typically get excited! All their hard work is paying off. A real offer from a real buyer backed by a real bank and real professionals are making the deal happen! RIGHT? What could go wrong?
Well… in fact… a lot! For the selling dentist, their prized sale can fall apart at any moment – even after MONTHS of negotiation, professional fees, due diligence, and promises that “this time we’re really closing.”
This was exactly what happened in the August 2025 case of Dr. Michael Emon Dentistry Professional Corporation v. Alexander Sevo Dentistry Professional Corporation. There, the selling endodontist sued the prospective purchaser endodontist for not finalizing the sale. The parties had entered into an LOI that set out various conditions that had to be met. They never got to signing the formal purchase and sale agreement or satisfying/waiving conditions. And after the buyer walked away, the seller sued the buyer on the basis that the buyer had breached their duty to act in good faith and with honest performance.
Background
- Late 2016: seller and buyer begin discussion for the purchase and sale of the endo practice.
- April 11, 2017: parties sign a non-binding LOI with conditions (due diligence, no material adverse change in the practice, and financing terms and new lease must be satisfactory to the buyer).
- April–June 2017: lawyers draft transactional documents and start negotiating a new lease. No signed copy of the existing lease is found. Lease negotiations involve the landlord and a co-tenant. Close is scheduled for June 30, 2017
- June 15–30, 2017: purchaser advises he doesn’t want to retain a hygienist so she is terminated at the purchaser’s request prior to closing
- July 2017: lease negotiations continue, draft lease received June 27. Purchaser hires a lease consultant on July 14. Revised terms are exchanged with the landlord through late July. The purchaser hires a dental assistant and begins installing point-of-sale equipment
- August 2-9, 2017: seller informs the purchaser that the office manager has resigned effective August 31 and bookkeeper will retire on closing
- August 14–15, 2017: the purchaser terminates the transaction, citing multiple concerns and provides written notice of termination of the LOI
- December 3-5, 2024: trial is heard on whether the purchaser breached duties of good faith or honest performance.
- August 2025: Court dismisses the case, citing that the purchaser was within his rights to terminate under the LOI.
Decision
The Court reviewed the LOI and the evidence and held, based on the legal jurisprudence, that there was NO Breach of good faith or honest performance and dismissed the lawsuit. Given how important this case is for selling and buying dentists, it’s worth looking at in greater detail.
Why This Matters for Dentists
Treating the LOI as a BINDING Contract
In the Emon decision, the LOI explicitly stated it was “not contractual in nature or binding,” and only reflected an intention to negotiate a purchase and sale agreement. The judge confirmed that, unless the LOI clearly creates binding obligations, it does not legally force the buyer to close the deal. And the parties hadn’t entered into the more formal agreement of purchase and sale (which for what it’s worth, also has conditions in it that favour the buyer akin to the conditions found in the LOI).
But many dentists want to treat the LOI as a binding contract. They see price figures and timelines and deposit amount and assume the buyer is locked in. Not true.
Buyers love LOIs for this reason. An LOI gives them an exclusive window to investigate, negotiate, delay, and — if things go sideways — walk away without legal penalty. And since the deals are typically always conditional on due diligence, legal paperwork, bank financing and landlord consent, buyers who walk away almost always get their fully refundable deposit back (and that’s quite normal for these types of transactions, despite what sellers may think otherwise).
“Conditional” Means the Buyer Controls Everything
Here’s where practice sale contracts get ugly in the real world: the whole deal is conditional upon certain things happening and the buyer being satisfied with same. Whether it’s due diligence (practice, financial, legal, etc.), the premises lease and having it transferred on favourable terms, the employee situation, getting favourable bank financing, and agreeing upon the seller’s post-sale associateship terms.
In the Emon case, the buyer had the absolute right to terminate the deal if he was not satisfied with his due diligence for any reason. That language gave him unilateral power to throw the entire sale out — and the court said that was OK. So when the buyer walked away because one staff (front desk) resigned and a bookkeeper was planning to resign on closing, the buyer decided, for those and other reasons, that they were not getting a turnkey operation and terminated the LOI.
In the Emon case, the LOI said that there was no liability for the buyer walking away and that each party had to bear their own costs in connection with the transaction contemplated in the LOI. And they have no legal obligation to buy unless the final Purchase and Sale Agreement (which comes after the LOI) has been signed by both parties AND all conditions in favour of the Buyer have been met/satisfied/waived in writing by the Buyer.
Duty of Good Faith and Honesty Performance
The Court reviewed the legal jurisprudence about good faith in exercising discretion and found that the buyer had not acted in bad faith. The law in Canada imposes a duty on parties to perform their contractual obligations honestly and in good faith. This will be breached when a party exercises its discretion UNREASONABLY, CAPRICIOUSLY, OR ARBITRARILY when one examines the purpose for which the discretion was granted.
In the Emon case, the Court actually found that, when the purchaser hired the lease consultant, it showed that, as of at least July, they had every intention of closing the transaction and WERE not acting in bad faith. The purchaser used the lease consultant to try to get the best deal terms for themselves, which isn’t acting in bad faith either (parties to a business transaction are allowed to protect their own interests and get their own best deal). Nor was it bad faith after the purchaser decided on August 15, 2017 to terminate the LOI after sending comments to the Landlord’s lawyer about the lease in late July 2017. The landlord’s lawyer suggested on August 11, 2017 that the landlord may not accept the purchaser’s revisions to the lease after receiving same. And it was on that basis, among other reasons, that the purchaser decided to walk away and terminate the LOI a few days later.
The general duty of honesty in contractual performance means that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. Parties are free to contract in a way that they can pursue their own individual economic self-interest. But they must NOT lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance.
If a Court finds that the duty of good faith or honest contractual performance is breached, then damages are assessed according to the ordinary contractual measure. This would result in putting Emon in the position that he would have been in had the duty been performed.
In the Emon case, the evidence found that the purchaser used all reasonable efforts to finalize a lease, including paying to hire a lease consultant. There was no evidence that the purchaser lied or otherwise knowingly misled the seller with respect to the lease negotiations.
The purchaser terminated the LOI pursuant to the terms of the LOI while acting in good faith, including while using their discretion through the due diligence process and while negotiating the lease. The Court found no evidence to the contrary. The purchaser took all necessary steps to complete the transaction and finalize the lease. The purchaser did not act in a capricious or arbitrary manner. There is no evidence that the purchaser lied or misled the seller with respect to their due diligence investigation or the lease agreement. Once the purchaser determined that they were no longer interested in finalizing the transaction, they advised the seller and told their lawyer and lease consultant to stop working on the deal in a prompt manner and in accordance with the LOI.
“Imminent Closing” Is a Phrase to Trap Sellers
One phrase sends alarms off with experienced practice sale lawyers: “We are almost there.” Dentists hear that over and over — over months and sometimes over a year — and meanwhile they stop hiring new staff, don’t buy new equipment or run new marketing campaigns, tell team members the sale is happening and start to plan their personal retirement/transition. Then — boom — the buyer terminates at the last possible moment, citing a due diligence condition they were always entitled to rely on. That’s exactly what happened in Emon. After months of negotiation and due diligence, the buyer pulled the plug. The court upheld his right to do so because the LOI gave him unfettered discretion. This is not rare. It’s standard practice when the buyer holds the leverage.
Bottom Line
If you are looking to sell your practice, you need to work with an experienced dental lawyer. At DMC, we don’t just draft contracts. We try to anticipate tire-kicking buyers who will waste time and fight for terms and conditions that promote the seller’s interests and protect the seller’s rights. We make sure you, as the seller, know what is binding and what is not, and how conditions can destroy your deal. We explain where you have power and where you don’t. And how to avoid open-ended buyer discretion. Selling a dental practice is one of the biggest financial events of your life. Don’t gamble it on hope, trust, or vague language. Arm yourself with lawyers who understand the battlefield, the documents, and the legal tactics that protect sellers. Contact us before you sign another LOI (better yet: have us be the ones that draft it for you!) — because your practice deserves certainty in an uncertain process.
