Dental Tribune UK & Ireland

Pathways for selling or purchasing a dental practice

By Amanda Maskery, UK
January 27, 2015

According to a recent survey by the National Association of Specialist Dental Accountants and Lawyers, private buyers and small groups in the UK have recently gained ground over large corporates in dental practice sales. Particularly for individuals looking to buy or purchase a practice, however, the process can sometimes be overwhelming. Sintons’ Amanda Maskery explains some of the most important aspects and where solicitors can help in the transaction.

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 or her practice. This will depend on factors such as the tax advantages of either structure.

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

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

The sale agreement can be the most protracted stage of the negotiations. The seller will want to ensure that his or her post-completion obligations and liability are minimal, while the purchaser will want to ensure coverage for anything that might go wrong with the practice post-completion. This will need to cover claw-back by NHS England and 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 and will differ depending on whether the seller is selling the assets or the shares.

It is common now that a separate solicitor will also have to deal with the property elements of the transaction. In the case of the purchaser, his or her solicitor will carry out searches against the property, review enquiries raised and prepare the transfer document. He or she 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, 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 such 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. The seller’s solicitor will deal with the removal of any existing mortgage or security over the property.

Throughout the transaction process, the purchaser’s solicitor will liaise with the funder of the transaction to ensure that its 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 be begun at an early stage to ensure the smooth release of funds at completion.

The solicitors will also liaise with their respective client’s accountants and tax advisers to ensure that agreement on proposed apportionments is met and that there are no impediments to the transaction in this regard.

The dental practice being sold will have a number of employees and this will vary based 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 on which the employees are contracted. 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 Undertakings Regulations and consultation with employees.

Often, the solicitors will liaise with NHS England to ensure that the contract is correctly transferred and to ensure that there are no issues arising that would affect the smooth transfer of the business from the seller to the purchaser. Where the seller is a limited company, 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. Furthermore, the solicitors will ensure that effective notices are given to the NHS, especially if the partnership route is required.

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 ensuring that the funder’s requirements are satisfied. The purchaser may want to do consolidation of legal matters, including employment policies and procedures, and register with the Information Commissioner’s Office for data protection. Other fields in which a solicitor can provide advice are intellectual property/information technology issues, branding, website issues or regulation. 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 or, in conjunction with the purchaser’s accountant, guidance on the best business structure, whether this is a limited company, a partnership or an expense-sharing partnership. He or she will prepare any documentation required to incorporate into a limited company and will provide a partnership agreement.

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

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