What to expect from a dental practice sale or purchase

A dental practice transaction can be done through an asset purchase (this gives the purchaser the opportunity to “cherry pick” the assets) or a share sale (where the purchaser buys “warts and all”) if the seller has incorporated his/her practice. This will depend on factors such as the tax advantages of either structure.

1. Heads of Terms

A solicitor will provide assistance with negotiating terms of the deal, including confidentiality and exclusivity. This can be either with the agents or the other side’s solicitors. It is beneficial to have solicitors involved at this stage so that all major terms can be agreed (for example restrictive covenants) and this assists in the preparation and negotiation of the sale agreement.

2. Due Diligence

The purchaser’s solicitor will provide an information request in respect of business and ask for commercial property standard enquiries to be answered. The seller’s solicitor will assist in the preparation of the responses to this. The purchaser’s solicitor will then review the replies and raise any further enquiries as need be. This is an important exercise as it can flush out any major issues at an early stage and allow the purchaser’s solicitor to negotiate indemnities/warranty protection to be inserted into the agreement, or a retention of the purchase price if need be.

3. Sale Agreement

The Sale Agreement will be negotiated between the seller and the purchaser. This can be the most protracted stage of the negotiations. The seller will want to make sure that his/her post completion obligations and liability are minimal and the purchaser will want to ensure that they have coverage for anything that might go wrong with the practice post completion. This will need to cover clawback by NHS England, patient charges and provide indemnities for contractual obligations and employees. The sale agreement will also deal with the mechanisms for the transfer of the NHS contract via the partnership route. The sale agreement will differ whether the seller is selling the assets or the shares.

4. Property

Running alongside the commercial aspects of the transaction will be the property transaction. It is usual now that a separate solicitor will deal with the property elements of the deal.  In the case of the purchaser, their solicitor will carry out searches against the property, review enquiries raised and prepare the transfer document. They will also then deal with the registration of title to the property at the Land Registry post completion. A solicitor will also review the planning aspects of the property and where necessary to do so provide a statutory declaration that the property has been used as a dental practice for a specific amount of time depending on the covenants attached to the property. The property aspects will depend very much on whether the property is leasehold or freehold and consents may need to be obtained from third parties, such as a landlord to the transfer of the property to the purchaser. In addition, there may be others in occupation of the practice premises such as a hygienist, or part of the premises may be used as residential. In these cases, the purchaser’s solicitor will need to be satisfied that there are proper arrangements in place to deal with the occupation of third parties. A seller’s solicitor will also deal with the removal of any existing mortgage or security over the property.

5. Banking/Security

Throughout the transaction the purchaser’s solicitor will be liaising with the funders of the transaction to ensure that their requirements are met. The funder will want to see that the title to the assets is appropriately transferred and that adequate security is given. It is important that this dialogue is opened up at an early stage to ensure a smooth release of funds at completion. The solicitors will also liaise with their respective clients’ accountants and tax advisers to ensure that agreement on proposed apportionments are met and that the transaction also works from this angle.

6. Employment

The dental practice being sold will have a number of employees and this will vary depending on the size of the practice. In relation to asset purchases the Transfer of Undertakings Regulations will apply. The purchaser’s solicitor will want to carry out careful due diligence to ensure that he or she knows the terms the employees are contracted on. The seller may wish to do a tidying exercise to ensure that contracts have been distributed to all employees and may require assistance in this and will require assistance in compliance with the Transfer of Undertaking Regulations and consultation with employees.

7. NHS England

The solicitors will often liaise with NHS England to ensure that the contract is correctly transferred and to make sure that there are no issues arising which would affect the smooth transfer of the business between the seller and the purchaser. Where the seller is a limited company then the contract will need to be checked for change of control provisions, whereby the NHS will need to give consent to any transfer to a third party. The Solicitors will also ensure that effective notices are given to the NHS – especially if the “partnership route” is required.

8. Post completion matters

There are a number of post completion matters that will need be dealt with such as registration of the transfer of the title with the Land Registry, payment of stamp duty where applicable and making sure that the funder’s requirements are satisfied. The purchaser may also want to do consolidation of legal matters including employment policies and procedures, registration with the Information Commissioner for data protection. A solicitor may also provide advice on IP/IT issues and branding, or advice on websites, or regulatory advice.

9. Disputes

From time to time disputes may arise post completion, such as in relation to warranty claims, the NHS or other matters resulting from the transaction. A solicitor may also provide debt collection assistance. This may result in solicitors needing to provide advice after completion.

10. Business Structure

A solicitor will, in conjunction with the purchaser’s accountant, provide guidance on the best business structure, whether this is a limited company, a partnership or an expense sharing partnership. A solicitor will prepare any documentation required to incorporate into a limited company and will provide a partnership agreement.

10. General Commercial Sense

One of the biggest ways in which a lawyer can help in a transaction such as this is providing general commercial sense and assistance.  If a solicitor is experienced in this sector then he or she will be able to provide a much better service by understanding the nuances and needs of a dental practitioner embarking on the very daunting task of buying or selling a dental practice.

If you need any information regarding buying or selling a dental practice or any other healthcare related matter, please contact Amanda Maskery or a member of the healthcare team.