Commercial leases are often viewed as routine business documents, but a recent Alberta court decision shows they can create unexpected personal exposure for dentists operating through professional corporations. In Telsec Property Corporation v. Tan Dat Tran Professional Corporation, the Court considered whether a dentist could be held personally responsible for lease obligations that were signed by his professional corporation rather than by him personally.
While this is an Alberta decision and is not binding on Ontario courts to follow, it does raise some interesting legal principles surrounding commercial leases, professional corporations, and personal liability.
In this post, we’ll review what happened, how the Court reached its decision, and why dentists should pay close attention to the structure of their lease arrangements.
Background
Dr. Tran operated a dental practice through a professional corporation and entered into a commercial lease for clinic space. The lease was signed ONLY by the professional corporation. Dr. Tran specifically declined to provide a personal guarantee.
After the practice experienced financial difficulties, rent payments stopped and the landlord pursued legal action for the unpaid lease obligations. The landlord was eventually able to secure another dental tenant, but still sought compensation for the outstanding amounts owing under the original lease.
The central question became whether Dr. Tran could be held personally liable even though the lease was signed by the professional corporation and no personal guarantee existed.
The Issue
The Court was asked to determine:
- Whether a dentist can be personally liable for a commercial lease entered into by a professional corporation.
- Whether lease obligations are connected closely enough to the practice of dentistry to trigger personal liability under Alberta’s Health Professions Act.
- Whether the tenant was entitled to credits for leasehold improvements and alleged failures by the landlord to mitigate its losses.
The Decision
The Alberta Court upheld the judgment against Dr. Tran and his professional corporation.
To come to that conclusion, the Court examined section 107 of Alberta’s Health Professions Act. That section states that every voting shareholder of a professional corporation (i.e. in this case, Dr. Tran), despite providing professional services on behalf of the professional corporation, is liable to the same extent as and in the same way as if they were carrying on the business of the professional corporation as an individual providing professional services.
The Landlord argued that section 107 of the HPA makes Dr. Tran personally liable for obligations of the professional corporation arising in respect of carrying on the business of the professional corporation. The obligations include the amounts owing under the commercial lease of the premises where the professional services are provided.
Dr. Tran, however, argued that section 107 can only be interpreted to hold the him personally liable for matters directly related to the provision of professional services to patients, and not for business transactions to which the professional corporation was a party. In other words: signing a lease is not an activity that involves the provision of the dentist’s professional services to the landlord.
But the Alberta Court disagreed with Dr. Tran. After reviewing the caselaw, the court found that a regulated professional will be personally responsible for commercial contracts, including for expenses related to equipment and employees’ wages, where the professional corporation has entered a contract that is connected to carrying on the business of the professional corporation. And in looking at the wording of section 107, the Court stated:
“It speaks of carrying on the business of the professional corporation. The College [of Dental Surgeons of Alberta] has defined for itself what that means and, according to the bylaws adopted by the College, the business of a professional corporation includes dealing in, and with, real and personal property necessary for the rendering of dental services. Leasing premises for the conduct of a dental practice is such an activity.”
As a result, the legislation made Dr. Tran personally liable for the lease obligations, even though he had refused to sign a personal guarantee.
The Court also rejected arguments that the landlord failed to mitigate its losses and dismissed the tenant’s attempt to claim compensation for significant leasehold improvements that remained with the property after the practice vacated the premises. The lease clearly stated that those improvements became the landlord’s property.
Why Does This Matter for Ontario dentists?
Many dentists incorporate for tax planning, succession planning, and other business advantages. However, this case highlights an important reality: incorporation does not always eliminate personal exposure. One of the more surprising aspects of this case is that neither party originally believed Dr. Tran would be personally liable. The dentist refused to sign a personal guarantee, and the landlord did not rely on one when entering the lease. Yet the Court still found personal liability through the governing legislation (section 107 of Alberta’s Health Professions Act).
Ontario dentists should note that this is an Alberta decision and Ontario courts are not required to follow it. Nevertheless, courts across Canada often examine similar principles when interpreting professional corporation legislation and commercial lease disputes. For that reason, the case may still be persuasive and provides a useful warning about risks that can arise when leasing clinic space through a professional corporation.
Ontario does not have a similarly worded section 107 of Alberta’s Health Professions Act.
Instead, in Ontario, section 3.4 of the Business Corporations Act says that having a professional corporation DOES NOT limit the professional liability of dentist shareholder. Typically, a shareholder of a corporation is not liable for any act, default, obligation or liability of the corporation except in certain rare circumstances (e.g. a shareholder can be liable for personally guaranteeing a debt, engaging in fraud which requires a piercing of the corporate veil, or when acting as a director they may be liable for unpaid employee wages, source deduction or certain tax obligations).
But in Ontario, in the context of a professional corporation, healthcare professionals remain personally liable for their own professional negligence, but ordinary commercial debts such as leases are typically the corporation’s responsibility unless another basis for personal liability exists. Ontario’s Business Corporations Act talks about a dentist shareholder’s professional liability, which is differently worded from section 107 of the Alberta Health Professions Act, which talks about a dentist shareholder being liable in the same way as the professional corporation when it comes to the business of the professional corporation.
Recall that the landlord argued that the inclusion of the words “carrying on the business of the corporation” in section 107 broadens the scope of personal liability of the professional corporation’s shareholders to include activities that extend and are connected to the “practice” of dentistry, such as entering into commercial contracts that are necessary to support he conduct and operation of the professional’s practice.
Again, we don’t have the same wording in Ontario. So it would be a stretch to say that courts here would or should find dentists personally liable under a lease (as a guarantor or indemnifier) on the basis of this Alberta case.
In a nutshell: Ontario professional corporations generally preserve personal liability for professional negligence and malpractice, but they are commonly understood to provide protection from ordinary commercial liabilities of the corporation, such as leases and loans, unless the dentist personally guarantees those obligations. One would expect, for an Ontario lease where the professional corporation is the tenant and the dentist has not signed a personal guarantee, that a landlord’s claim would generally be against the corporation rather than the dentist personally.
Bottom Line
This case is a reminder that operating through a professional corporation does not automatically shield dentists from every business obligations. Thankfully in Ontario we don’t have a similarly worded section 107 of the Alberta Professions Act. Before signing or renewing a lease, dentists should ensure they fully understand how personal liability provisions, leasehold improvement clauses, and professional corporation legislation may affect them if the practice encounters financial difficulties.
Key Takeaways for Alberta dentists:
- A professional corporation may not always protect a dentist from personal liability.
- Refusing to sign a personal guarantee may not eliminate all personal exposure.
- Leasehold improvements can become the landlord’s property without compensation.
- Courts expect landlords to mitigate losses, but reasonable incentives to attract replacement tenants may be acceptable.
Although this is an Alberta case, Ontario dentists should still pay attention to what’s going on elsewhere in Canada. If you are negotiating a new lease, renewing an existing one, or considering a practice transition, obtaining legal advice before signing can help identify risks before they become costly problems. For more dental law insights, be sure to explore our growing collection of case reviews.
