Buying a dental practice is probably one of if not the most important decisions you as a dentist will ever make. The consequences of getting it wrong could have a detrimental impact on your future, not just professionally but also personally.
At Goodman Grant lawyers we have provided specialised advice to dentists and dental practitioners on a range of industry specific issues for over 25 years. We understand that the growth of regulation and the increasing complexity of dentistry have made this a specialist field. Goodman Grant are thoroughly experienced and have the knowledge to guide you through the minefield of legal, administrative and commercial issues that can arise during the purchase of a dental practice.
We have also seen first hand and have had to deal with, the consequences of someone completing a purchase of a dental practice when these steps have not been followed. In some cases the lawyer acting for the seller or purchaser, who may be a good lawyer in non-dental transactions, does not have the experience and knowledge of what is required to handle a purchase of a dental practice. The result is a delayed completion leading to higher costs! Would you like to know how using a dental lawyer will save you time and money when buying a practice? Click here to read our blog post for some tips on how to avoid delays and higher costs.
Using our vast experience of successful purchases, we have created an eighteen step guide outlining the critical steps to take, to help make the purchase of your practice genuinely pain free.
1. WHO IS SELLING WHAT TO WHOM AND HOW?
Buying a dental practice can be a complicated legal process. That is why it is crucial you have someone who can guide you through the dental-specific legal issues that may arise.
You may have done some research. Goodman Grant from experience, know that unexpected complications can arise. Consider the following scenarios:
- You find a practice you want to buy. The legal situation is that the dental practice is incorporated and the goodwill, equipment and any other assets belong to a company, whose shares are owned by the dentist. The existing owner will be advised whether to structure the transaction as a sale of shares by him or assets by the company and you will need to be aware of the implications of each choice.
How might this affect me as the buyer?
Just one example - if the GDS contract is in the company name, it must be checked to ensure that it does not include a “change of control” clause. This would mean that NHSE may be entitled to terminate your contract if the ownership of the shares alters.
- Your funder or accountant suggests you incorporate your new practice, although the practice is currently owned by an individual dentist. The Ticking Time Bomb of Flawed Incorporation explains why the importance of engaging industry-focused legal professionals cannot be underestimated when the time comes to incorporate a dental practice.
How might this affect me as the buyer?
As the GDS contract is not in the name of a company, the NHSE may not agree to transfer it. The partnership route (being the usual way in which NHS contracts are transferred) will not apply; and you will need to consider how you can acquire the practice through a company. There are advantages and disadvantages from a legal, accounting and tax perspective in incorporating and you would need to carefully consider these with an experienced dental lawyer to get the best set-up for your situation.
2. WHY DO I NEED A SPECIALIST LAWYER?
If you ask a non-specialist lawyer what is meant by a GDS contract, a PDS agreement, UDA, UOA, BSA, GDC or even BDA (he might know the answer to that one!), you will probably get a pretty blank face.
If you ask a non-specialist lawyer what is meant by “the partnership route”, or a Section 295 notice, you will likely get a similar response.
To make sure you acquire a business and ensure that the benefits of an NHS contract are transferred to you whilst also ensuring the liabilities of the seller are not, you will need to use a specialist lawyer.
Goodman Grant managing director Ray Goodman has been a dental lawyer for over twenty years. He is a member of the Association of Specialist Providers for dentists, and the past chairman of the Lawyers Group of the National Association of Specialist Dental Accountants and Lawyers. John Grant co-managing director has been advising dentists since the early 90s, through the introduction of the NHS contract in 2006, through to the introduction of the CQC. John is the past Chairman and current Vice Chairman of the Association of Specialist Providers to Dentists, and is on the the BDA panel of recommended solicitors.
The combined expertise and experience of John and Ray provide not only specialist law but also commercial experience. Goodman Grant understands your needs as a dentist purchasing a practice, and can help you avoid potential pitfalls. Avoid headaches! We are giving you a FREE legal assessment where you will be able to raise questions or concerns about the purchase transaction and get answers from one of our expert dental solicitors.
3. HOW WILL I FINANCE?
If you are looking at purchasing your own practice, chances are you will need funding. There are several lenders who have specialist healthcare teams who will understand your particular needs. An experienced dental lawyer will have contacts with specialist bank lending teams.
Be aware that there will always be pre-conditions. If you, or your family, own a residential property, your lender may require a second charge. Not all mortgage companies will agree to this, and you may need to re-negotiate the pre-conditions, or seek alternative finance.
Some sellers’ solicitors will not issue contract papers to a buyer unless there is assured funding, so you should put in hand your financial arrangements as soon as possible.
4. WHY DOES DUE DILIGENCE MATTER?
A good solicitor will act on the premise that the seller knows everything about the business and you the buyer know nothing.
Your solicitor should enquire about all aspects of the practice and review paperwork including accounts, maintenance arrangements, patient information, compliance record licences and certificates, and, but certainly not least, NHS UDA performance levels.
Why is this so important?
Imagine you buy a dental practice without these in-depth checks. We at Goodman Grant know from experience this is more common than you’d think. You could end up six months down the line liable for remedying work not up to standard, incorrect banding of capitation scheme patients, realise you have underperformed UDAs and having to buy new expensive replacement equipment. Very quickly, a profitable business and an exciting new venture can turn into a nightmare!
The good news is this is easily avoided with the right advice at the outset. A specialist dental lawyer will know the right questions to ask to ensure that you properly assess the business. They will also be able to negotiate a contract that reflects the business you are purchasing, including fail safes within it for any unexpected surprises once you have purchased.
5. WHAT DO I LOOK FOR IN AN NHS CONTRACT?
Not all GDS contracts are the same.
- Sections 77 and 78 may include the allocated number of UDAs, but they may be set out in Schedule 4.
- Section 75 might identify the “normal surgery hours”; but the agreement may not specify them.
- The seller may have chosen to be an NHS body and enter into an NHS contract, but what does this mean for you? Usual partnership provisions may be omitted, but a specialist lawyer can identify relevant sections in the GDS Regulations to enable the contract to be transferred.
These are fairly common issues. A specialist dental lawyer will know what to look for in a GDS Contract and how to advise you appropriately. A specialist like Goodman Grant, with a lot experience in helping with the purchase of dental practices will also understand how to deal with the more difficult problems in a contract, such as a time limited GDS contract or one where UDA values are uncertain.
As you are likely continuing to work full time whilst you purchase your practice, having a specialist dental lawyer to go through the NHS Contract with a fube toothcomb, flag up potential problems and more importantly proven solutions, can save you time, money, stress and sleepless nights, both now and in the future.
6. HOW LONG WILL IT TAKE TO COMPLETE MY PURCHASE?
You, the buyer may be quick to proceed. You have decided you want to make the career move - you are itching to get started.
The seller may also be quick to proceed. They may be waiting to retire, or to move area. However, there are third parties who will be involved who can easily slow down the process. Even with specialist dental lawyers acting for both the seller and buyer, which is by far the fastest process, you may still be looking at eight months from start to finish.
Why so long?
- The Bank - You will likely need external funding. Banks are cautious. Not only will you need to agree the terms of borrowing with a business manager, but the package will need to be approved by the Securities Department of the bank.
- Giving notice - If you are currently an associate, you may need to give three months notice to your principal.
- The Lawyers - The legal work will need to be processed.
- The CQC - Timing the CQC application right is imperative to ensure you are ready and legally able to practice once you own the practice. A specialist lawyer will understand this.
- NHSE, - again timing is everything - remember to make an early application to be included in its performer’s list.
Avoiding any unnecessary delays through a lack of understanding about the process of legality will ensure the most expedient process possible.
7. WHERE DO I START WITH THE CARE QUALITY COMMISSION?
So important...we’ve named it twice! The CQC. Where do you even start?
Sellers may be registered for the treatment of disease, disorder and injury, surgical procedures, and diagnostic and screening procedures without condition, other than the premises.
It is likely that the CQC has inspected the surgery and confirmation needs to be obtained that any recommendations in the CQC report have been complied with.
You will need to submit your own application for registration at the practice, liaising with the seller. It will be a pre-condition of funding that the CQC provides written confirmation that it will register you once the transaction has been completed.
Before issuing this the CQC may require an interview to establish your fitness for registration. This could have cost and other implications.
Your application must be accompanied by an enhanced CQC countersigned DBS check which takes several weeks to process. If you are buying an NHS practice the situation is even more complex.
At Goodman Grant we have a dedicated CQC team who can take all of this headache away. We can take you through a simple step by step process.
8. PROPERTY - LEASEHOLD OR FREEHOLD?
Properties are sold either freehold or leasehold.
- Leasehold Common Issues:
If you are purchasing a practice with a leasehold, this can cause issues with potential lenders, depending on the length of the lease left. If you are borrowing over a fifteen year period, which is a standard term, the lender will expect a fifteen year lease on the building.
Often existing practices don’t have this long a lease negotiated with the landlord. This isn’t usually a problem but can often have a cost implication, when the seller goes to negotiate with the landlord. The landlord is likely to want the legal bill paid; and the seller may look to you for this additional cost. Even if there is a fifteen year lease in place, the landlord’s consent is likely to be needed for the seller to transfer the lease to you. This will require references and/or accounts to verify your suitability as a tenant.
- Freehold Common Issues:
If you are buying a freehold property, a lender will require a valuation before committing to the funding. You may also find that if you are unable to afford to buy the freehold, the seller will be willing to lease it to you. Think about asking for an option to purchase the building, or a right of first refusal if your new landlord wishes to sell in the future.
9. WHAT DO I NEED TO LOOK OUT FOR WITH EQUIPMENT?
The seller should provide you with a list of all equipment that is to be included in the sale. It’s important to note that dental chairs, autoclaves, computers or other equipment may be leased and the seller might want you to take over the leasing arrangements, rather than paying them off. The additional costs of leasing must be factored into the ongoing expenses of running the practice and the consent of the finance company will be required.
We would advise you to visit the practice before making an offer. You might even want to ‘mystery shop’. See how staff treat the equipment, see how it’s stored. This will give you an insight on the practice before you make your final decision to purchase.
10. MORE THAN ONE BUYER?
So far, we have focused on the sale as if you were the only buyer. More and more often, this is not the case and two or more people will purchase a business together.
- This opens up a wealth of questions about how to structure the legal entity that purchases the practice. Your decision may affect your level of liability, how you bid for future contracts and may have tax implications, so it’s vital you get proper advice from specialist lawyers. You may consider whether to buy as a partnership which will mean that you are each responsible for the other’s debts in relation to the practice and may have tax consequences. You may consider buying as individuals, who work together in an expense share arrangement.
- You may also look at buying through a limited company where you each own shares, although there can be complications when trying to buy an NHS practice through a limited company.
- You may choose to be partners for the purposes of a GDS contract but still operate the practice as expense sharers.
We are experienced at guiding people through the process of discovering the right way to structure their business and the way that will work best for them, both now and in the future.
We can help you draw up a written agreement that takes into account matters such as an exit strategy; who benefits from the work of associates; whether you share expenses and joint income equally; if you should effect insurance cover for critical illness, or life assurance policies to enable a survivor to buy the whole practice; locum arrangements and many other factors which you will need to consider when running a business together.
Having someone who knows the common issues that can arise down the line will help you to avoid those pitfalls and have a successful co-working arrangement whichever way you decide on structuring your business.
11. HOW DO I DEAL WITH ASSOCIATES?
You are ready to buy a practice. You have decided you are at that stage in your career. The seller may be someone who has decided they no longer want to run a practice. They may however, be willing to assist you by staying on as an associate. This can be the start of a great working relationship. You can have someone who has knowledge, expertise and understanding of the local area as you begin your journey to develop your practice.
There are some things you will need to put in place to ensure this remains a great working relationship! You will need to consider and agree with the seller the hours and remuneration they are looking for. It is vital for the protection of your practice that there is an agreed written Associate’s Agreement ready to put in place on completion before you are legally committed to the purchase.
On a side note, the seller may not be the only associate you have to deal with. You are buying a whole practice - this may mean there are associates, dental hygienists and therapists who come with the practice. If you are a first time buyer, and first time business owner, having someone you can turn to for legal, commercial and dental specific advice is crucial.
It’s also worth noting there are some places in the country where there is a reported shortage of associates. It’s vital you research the area in which you are planning to purchase the practice.
In this blog post: Agreeing with Associates, John Grant discusses the need for practice owners to have bespoke written associate agreements in place.
12. CAN I PUT RESTRAINTS ON TRADE?
You find a practice. It is very successful. You buy the practice. A month later you are losing patients and you can’t work out why. Until someone says - the seller has set up five miles down the road and is now competing for your business. People understandably are going to their old dentist who they trust. What can you do?
When you buy a practice, you are paying a substantial sum for the goodwill of the practice. Much of what you are paying for is the name, and reputation of the business so you need some reasonable restrictions written into the sale to protect you against the situation described above.
But what is a reasonable restriction?
Is it reasonable for the seller to be prevented from competing with you during the next three years over an area of ten miles from the practice? A court might see it differently to you and consider that three years is too long. Ten miles might be OK in the countryside but not when the practice is in the centre of a city.
A restriction that falls foul of the reasonableness test is void and is unenforceable even the day after the sale completes. You need to work with an expert team who can word a carefully considered and drafted restriction giving you the peace of mind of knowing that you have this protection.
13. WHAT DO I NEED TO LOOK OUT FOR WITH UDA PERFORMANCE LEVELS?
You, as a potential buyer discover that the seller will have performed less than half the annual number of UDAs by 30 September. Is this acceptable? Should the seller have carried out one twelfth every month?
The seller might argue that many practices carry out more UDAs in the second half of the year. It is really common to get to the end of month six and not be halfway in terms of UDAs.
However, the BSA pays monthly. So if the seller is behind target he has actually been paid for work he has not carried out.
What if, you as a potential buyer, purchase a practice in the March. You are told the practice is up to date with the current year UDAs. Then five months in, you are notified that there will be consequences due to underperformance. How could that hapen?
Well, it is often not until July/August, that the NHSE determine the consequences of an underperformance which is more than 4% of the annual figure from the previous NHS contract year.
A specialist dental lawyer will understand the details to look out for when purchasing a dental practice, and the due diligence that is dental specific - so you are not left in a situation like this in the future.
14. PROPERTY - WHAT ELSE MIGHT I NEED TO KNOW?
When you are purchasing a property, be it freehold or leasehold, there is much more to think about than just the sale.
The seller should produce an energy performance certificate and an asbestos survey as well as a fire risk assessment, all of which are required by law, but often will have not been carried out by a selling dentist.
Did you know that it is a requirement of the Equality Act 2010 that reasonable adjustments be made to premises to make them accessible to disabled patients? If the property is leasehold, bear in mind that the landlord will usually need to consent to any alterations, even if carried out to comply with legal obligations!
15. PROPERTY - ARE THERE TENANTS?
Buying a freehold can be complicated. Apart from any issues relating to the seller’s title, or revealed by the usual conveyancing enquiries, if you are buying a property where there are two or more flats upstairs, there may be a legal obligation on the seller to offer the tenants first refusal on the whole building! The tenants are most unlikely to be at all interested but it would be unlawful not to ask.
Buying a property with tenants also opens up a whole other list of legal questions. Having a specialist lawyer, who can not only handle the dental specific questions, but can also handle the commercial aspects of the purchase can save you a huge potential headache along the line.
16. WHAT CERTIFICATION MIGHT I NEED?
Your lawyer should confirm that the seller has up to date certificates for GDC registration and professional indemnity insurance for themselves and their clinical staff, as well as employer’s liability cover, and current certificates for autoclaves, compressors and X-Rays.
There is a requirement for portable electrical equipment to be in a safe condition. This does not necessarily require an elaborate system of testing. Proof of maintenance and regular visual inspection of the type of portable electrical equipment in a dental practice will be adequate so long as the equipment is removed or repaired if damage is found.
As a condition of CQC registration, a practice should commission a legionella report which should be reviewed. You should also consider what steps have been taken to comply with HTM01-05 and any recommendations in the CQC inspection report. Remember, if you are taking over a leasehold practice that you are going to need the consent of the landlord to carry out any works of a structural nature and that the CQC will be inspecting practices to ensure compliance.
17. WHEN IS AIR CONDITIONING A PROBLEM?
You go to see your potential new practice. It’s a hot day. They have the air conditioning on. You think, that will come in handy. But hang on -
Did you know that:
- There are statutory regulations which require inspection of all air conditioning systems over 12kW rated output installed in buildings?
- Not only may the installation of the units have required landlord’s consent, but it could also need planning permission?
18. WHAT ARE WARRANTIES?
Back to point 4.
A good solicitor will act on the premise that the seller knows everything about the business and you the buyer know nothing.
Your solicitor should require the seller to guarantee the information provided by them to you, and to reimburse you for loss caused by them giving incorrect information. The sale agreement should include statements from the seller in support of representations on the financial state of the business, the equipment, the staff, compliance and other aspects of the practice.
Only an experienced dental solicitor will know the right warranties to include in the sale agreement for your protection after the purchase has completed.
BONUS: HOW CAN GOODMAN GRANT HELP YOU?
Purchasing a practice is one of the biggest decisions you will make. It has the potential to also be one of the most stressful ones! A lot of the stress can be avoided by having the right team around you. Our team at Goodman Grant have a wealth of knowledge and experience when it comes to helping with the purchase of dental practices. It is important you view it as a business from the start - that you find the right business for you. One where you can grow, develop and have a plan to expand.
Getting an impartial evaluation before you make an offer, with someone who can help you see the potential successes and pitfalls in the practice you have chosen will be invaluable to your success. At Goodman Grant we have advisors who can lead you through this process. One of our clients, Aaron, recently told us why he always recommends us to his dentist colleagues.
"Goodman Grant deliver what they need to deliver with a minimum of fuss and for a resonable price" - Aaron Yusuf
We know from experience that understanding the business you are looking to purchase, and having the need for the right team around you, both through the purchase and beyond, are keys to a successful practice. At Goodman Grant we have the expertise and experience to guide you every step of the way to purchasing your own practice and running a successful business. Our goal is to become your partner, employing our knowledge and expertise to help you. Here is what you can expect when you hire Goodman Grant to buy a practice.
If you are thinking about buying a dental practice but you’re unsure of what is required or want to discuss the options available to you, why not contact our team for a chat? We have offices conveniently located in Liverpool, London and Leeds.
If you’d like to read more of our client success stories, visit our website www.goodmangrant.co.uk/site/about/testimonials