Most dentists assume that operating through a professional corporation protects them from personal liability under a commercial lease. An Alberta court decision suggests that assumption may not always be correct. While this is an Alberta decision and is not binding on Ontario courts, it raises important questions about commercial leases, professional corporations, and personal liability. More importantly for Ontario dentists, it serves as a reminder that incorporation does not eliminate every business risk.
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
In Telsec Property Corporation v. Tan Dat Tran Professional Corporation, 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 Issues
The central question was whether Dr. Tran could be held personally liable even though the lease was signed by the professional corporation and no personal guarantee existed.
The Court was asked to consider:
- Whether lease obligations are connected closely enough to the practice of dentistry to trigger personal liability under Alberta’s Health Professions Act.
- Whether the landlord’s claim should be reduced based on leasehold improvements and its alleged failures to mitigate losses.
The Decision
The Alberta Court upheld the judgment against Dr. Tran and his professional corporation.
The Court concluded that the lease obligations were sufficiently connected to carrying on the business of the professional corporation to make Dr. Tran personally liable under Alberta’s Health Professions Act. A key reason for that conclusion was that the Act provides that voting shareholders remain liable “to the same extent and in the same way” as if they were carrying on the business individually.
Dr. Tran argued that personal liability should be limited to matters directly related to providing professional services to patients, not business agreements such as a commercial lease. The Court disagreed.
The Court found that regulated professionals can be personally responsible for commercial obligations connected to carrying on the business of the professional corporation, and stated:
“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 Court concluded that Dr. Tran was 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 claim for compensation relating to 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 This Matters for 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 Alberta’s Health Professions Act.
Ontario dentists should note that Ontario does not have a provision equivalent to section 107 of Alberta’s Health Professions Act. A key distinction is that the Alberta legislation refers to liability arising from carrying on the business of the professional corporation, which the Court interpreted broadly enough to include leasing clinic space. Ontario’s legislation, by contrast, focuses on preserving a dentist’s professional liability and does not contain the same language. For that reason, it would be a stretch to suggest that Ontario courts should reach the same result solely on the basis of this Alberta decision. Nevertheless, courts often consider decisions from other Canadian jurisdictions when addressing similar issues.
The case also highlights the importance of understanding how lease arrangements are structured. While Ontario dentists may not face the same statutory framework considered in this decision, lease documents can still create personal obligations through guarantees, indemnities, or other contractual provisions. Before signing a lease, dentists should understand not only what protections incorporation provides, but also where those protections may end.
Bottom Line
This case is a reminder that operating through a professional corporation does not automatically shield dentists from every business obligation. While Ontario does not have legislation equivalent to the Alberta provision that drove this outcome, the decision highlights the importance of understanding where incorporation protections end and personal liability risks may still arise.
Before signing or renewing a lease, dentists should understand how corporate structures, personal liability provisions, and lease terms may affect them if the practice encounters financial difficulties.
