The property related elements of the sale and purchase of a dental business are fundamental yet often overlooked, particularly at the very outset of the negotiation. The risk is potential delay at a crucial stage of the commercial transaction and loss of negotiating position. After all, what value is a practice without premises to operate from?
On the sale or purchase of a dental practice, consideration must be given at an early stage to the existing occupancy arrangements, and the ultimate requirements of the parties.
- How are the practice premises held?
If freehold – will there be a freehold sale, or will the seller of the business grant a new lease to the buyer?
If leasehold – will the lease be transferred to the buyer? Has the landlord agreed to the transfer and subject to what conditions?
- New lease
Commercial heads of terms often make cursory mention of the need for a lease to be put in place, but without any specific details for this crucial arrangement.
I would encourage both parties to agree detailed heads of terms at the earliest opportunity and guidance notes and instruction sheets are available to act as useful prompts and checklists to ensure that important issues are not overlooked. For example the landlord’s ability to charge VAT on the rent - an important consideration for dentists; the condition of the premises - should protections be factored in to limit the tenant’s liability for repair?
- Existing lease
In the case of an asset sale, checks must be carried out to establish whether the landlord’s consent is required for the proposed transfer of the lease. I would also always suggest you seek expert advice on any conditions, which the landlord may insist on as a precondition to the grant of consent. These may include security such as rent deposits or personal guarantees.
Early engagement with the landlord is the key. Dealing with an independent third party and their solicitor can impact upon any timescales agreed between the seller and buyer who are both more naturally motivated to progress matters.
Even though a lease is already in place, and unlikely to be able to be varied, it is still important to get a handle on the terms of the lease (there may be crucial defects) and the condition of the premises (by way of a ‘dilapidations’ assessment). You can then bring this knowledge to bear on the wider business negotiations. If the lease is wholly unsuitable now is the time to press for a variation or even a brand new lease.
- Sale and purchase agreement (SPA) and property advice
- You should work closely with your legal team to ensure that the SPA includes:
- Mechanics so that any security over the practice premises (e.g. legal charges) are released on completion;
- Appropriate property warranties; and
- Provisions governing the sale and purchase of the practice premises (in the case of an asset sale).
- Your lawyers should of course make you aware of potential property issues and risks involved in the dental practice sale and purchase, although this is just one (albeit important) element of the wider deal.
- Your lawyers should, at an early stage, agree with you the approach to the property elements to suit your preferences, priorities, and assessment of risk and budget. This is key in deciding to what extent you would wish them to be involved in the due diligence for the practice premises and in deciding what searches and enquiries they should submit on your behalf.
- In all cases, it is important that with the input of your lawyers you are able to make informed decisions on the legal issues surrounding the practice premises.