Selling One Division Nearly Cost the Other Its Landlord Deal

The situation

Jing spent her weekdays in an operating room. The other part of her life was a 22% stake in a diagnostic imaging company that her business partner, Hua, had built over two decades in Ottawa. The company ran two lines of business under one roof: a clinical imaging services division that scanned patients for referring physicians, and a smaller medical equipment leasing division that rented diagnostic hardware to clinics across the region. Hua held the majority stake and ran daily operations. Jing's involvement had always been financial — she had invested early, sat as a shareholder, and received her share of distributions, but left the company's management to Hua.

That changed when Hua brought her a deal. An investor group led by a principal named Kavya had offered roughly $62 million to buy the imaging services division outright, leaving the leasing division behind as a smaller, standalone business still owned by Jing and Hua together. Selling one division while keeping the other is called a carve-out, and it is one of the more delicate transactions in corporate law, because the two businesses had spent years growing into each other — sharing staff, software, a building, and even internal loans between them. Hua sent Jing a shareholder consent to sign, framed as a formality. Jing, with no interest in reading fifty pages of transaction documents between surgeries, brought it to Treadstone Law instead of signing it.

What the review found

The company operated under a unanimous shareholder agreement, a contract that shareholders use to set out how major decisions get made and to give minority owners approval rights they would not otherwise have under Ontario's corporate statute. This one required Jing's consent before the company could sell substantially all of a division's assets. That was the document she had been asked to sign — and on its face, the sale price and terms for the imaging division looked reasonable for a business of that size.

The problem was in what the carve-out plan did to the division Jing was keeping. Both divisions operated out of a single building that Hua owned personally and leased to the company — Hua's other significant asset was a portfolio of commercial real estate, and this building was part of it. Historically the company paid Hua about $18 per square foot, below market rate, across the full 40,000 square feet the business occupied. As part of the sale, Hua — as landlord — was negotiating a fresh 15-year lease directly with the buyer for the roughly 25,000 square feet the imaging division would keep occupying, at a freshly appraised market rate of about $34 per square foot. That part was ordinary; a new tenant negotiating a new lease with an independent landlord is not remarkable.

What was not disclosed to Jing was a linked clause resetting the rent on the remaining 15,000 square feet — the space the retained leasing division would keep using after closing — to that same $34 per square foot market rate, replacing the legacy below-market rent it had paid for years. On its own, a rent reset is not improper. But this reset benefited Hua personally, as the landlord collecting the higher rent, while landing entirely on a business Jing still owned 22% of going forward. The retained division's occupancy cost would jump from roughly $270,000 a year to about $510,000 a year — close to $240,000 in additional annual cost pulled straight out of a division with a much smaller revenue base than the one being sold. That is a related-party transaction: a deal where an insider sits on both sides, standing to gain personally from a decision made in their capacity as majority shareholder and manager. Ontario law does not forbid related-party transactions between shareholders, but it does expect them to be disclosed, priced independently, and put to minority shareholders honestly — not folded into a consent request framed as routine paperwork.

What we did

1. Mapped the full disentanglement schedule before touching the consent. A carve-out is not just a sale — it requires sorting every shared asset, contract, employee, and piece of software into one bucket or the other. We asked for the complete schedule showing what moved with the imaging division and what stayed, and cross-checked it against the lease terms Hua had negotiated with the buyer.
2. Identified the related-party lease reset as the real issue. The sale price for the imaging division was fair. The rent reset buried in the same set of documents was the part that needed scrutiny, because it transferred value from the retained business to Hua personally without separate approval or independent pricing.
3. Obtained an independent market rent opinion for the retained space. Rather than accept the $34 per square foot figure at face value, we had it tested against comparable commercial space in the same part of Ottawa to confirm whether it reflected genuine market conditions or had been set to match the buyer's negotiated rate for convenience.
4. Required disclosure and a standalone vote on the related-party terms. We advised Jing not to sign the consent as drafted. Instead, we required that the lease reset for the retained division be presented and priced as its own related-party matter, separate from her consent to the divisional sale, with Hua stepping back from negotiating that piece given the direct conflict of interest.
5. Negotiated a phased rent adjustment instead of an immediate jump. Once the market rent figure was independently confirmed as broadly accurate, we did not fight the number itself — we negotiated how it was applied. The retained division's rent would step up over three years rather than reset immediately, giving the smaller business time to absorb the increase without a sudden hit to its earnings, and by extension to the value of Jing's stake.
6. Documented the disclosure in writing. Because the point of the exercise was to protect Jing from a later dispute as much as from an immediate financial hit, we made sure the final agreement recorded that the related-party terms had been separately disclosed, independently priced, and knowingly agreed to — closing off any future argument that she had signed without understanding what she was consenting to.

The outcome

The sale of the imaging division closed at roughly $62 million, on schedule and without disrupting the buyer's timeline. Jing signed her consent once the related-party lease terms had been separated out, independently priced, and phased in a way that gave the retained leasing division room to adjust. Instead of an immediate $240,000 annual cost increase landing on a business with a much smaller revenue base, the retained division absorbed the change gradually, preserving its earnings — and the value of Jing's 22% stake — through the transition.

Nothing about this case involved a dispute, a lawsuit, or a breakdown between Jing and Hua. That was the point. The related-party terms were caught during document review, before the consent was signed and before the lease reset took effect, which is the difference between a routine adjustment and a grievance that could have festered for years. Had Jing signed the original consent without the changes, she would have had a case that Hua's dual role as majority shareholder and landlord had produced an unfair benefit at her expense — a scenario that Ontario's corporate statute allows minority shareholders to challenge through what is generally known as an oppression claim. That kind of claim can take years to resolve and rarely restores the relationship between the parties involved. Catching the issue at the consent stage meant none of that was ever necessary.

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