For a professional dentist, going out on your own and purchasing a dental practice is a big career move, full of excitement and risk. With proper advice, the transaction can be managed so you can let anticipation for your future reign full throttle.
When purchasing a dental practice there are many things to consider. From the commercial lease to TUPE issues, NHS contracts, Care Quality Commission (CQC) requirements and, reviewing existing agreements for change of control provisions etc., the extent of the paperwork and considerations which go into buying a dental surgery can seem overwhelming.
In this article, we outline some of the key matters you need to consider during the purchase process.
- Structuring your acquisition
- Structuring the practice
- Due diligence
- Employee matters
- NHS contracts and CQC considerations
Structuring your acquisition
If you are purchasing an existing dental practice, there are two ways this can be done.
You can either purchase the shares in a company that owns the practice (i.e. a share sale) or you can purchase the business assets from the seller (i.e. asset sale). Deciding the structure of the transaction must be undertaken at the very beginning. Each option has advantages and disadvantages.
The purchaser will acquire the whole legal entity together with all its assets and liabilities. This is usually the preferred option for the seller as it allows for a clean break, however, buyers must be careful that they do not unknowingly inherit the historic liabilities of the company.
The purchaser can effectively pick and choose which assets to purchase. Normally, all assets (stock, equipment, IP rights, property, etc.) will be transferred and the liabilities will stay with the seller. This tends to be the preferred option for the buyer from a legal perspective, although it is important to consider whether a share sale of a company will allow for a smoother transfer of the practice from the NHS and CQC perspective, and to seek tax advice in parallel to be sure of the most financially efficient option.
Structuring the practice
If you are purchasing the dental practice with others, you need to decide whether to set up as a traditional partnership, Limited Liability Partnership (LLP) or a company.
Each of these options has advantages and disadvantages. What is essential to avoid costly legal disputes in the long-run, is to ensure there is a Partnership Agreement (in relation to a traditional partnership or LLP) or a Shareholders’ Agreement in place (if you are structuring the practice as a company).
A Partnership Agreement or a Shareholders Agreement will document how the practice is to be run, how profits will be shared, what happens should a partner retire, or a shareholder wishes to sell their shares, and how disputes will be managed. Investing in an agreement may seem like an additional expense you can ill-afford when buying a dental practice, but clarifying the responsibilities and rights of each owner can save thousands of pounds in legal fees should a dispute occur in the future.
Carrying out thorough due diligence prior to the purchase is essential to protect your long-term interests.
A large part of your professional advisors’ job is to find out everything there is to know about the dental practice you are purchasing and advise you on any issues which may cause you concern, now or at a later date.
Your solicitor, accountant, surveyor, and any other advisors will look into the practice’s accounts, the property, the patients and employees of the practice and NHS UDA performance levels. In addition, your solicitor will check if any legal actions are pending against the current owners of the practice, the compliance records, maintenance and supplier agreements, and employee contracts and their respective change of control provisions etc.
The goal is to ensure any skeletons in the closet are well and truly revealed prior to the completion of the transaction. The last thing you want to discover six-months down the line is there has been an incorrect distribution of patients throughout the bands within the capitation scheme or a vital piece of equipment needs replacing at the cost of thousands of pounds.
If concerns are picked up during the due diligence process, they can be used to negotiate a lower purchase price and/or put effective mechanisms in place to protect you.
It is therefore imperative to get the due diligence done properly before you sign the sale and purchase agreement. Effective due diligence allows you to balance your long-term risks.
Part of the due diligence process will include looking over the commercial lease (if there is one) and looking into the seller’s title to the property.
It is essential that when the dental practice is sold, the existing lease is transferred to the buyer. Otherwise, you may end up owning the business, whilst the seller remains the legal occupier of the property.
Your solicitor will check the terms of the lease and let you know if the landlord’s consent is required to have it transferred and/or any other restriction clauses.
The landlord is duty bound to consider a request for consent to the transfer of the lease (commonly referred to as a lease assignment) and cannot refuse consent unless it is reasonable to do so.
Where the seller owns the freehold title to the pharmacy property, the solicitors will need to ascertain that the seller actually owns the legal title and find out if the land has any restrictive covenants or encumbrances that prevent you from enjoying the land and/or any third-party rights over the land.
When a business is transferred with existing employees, both the transferor and the transferee must comply with the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
Essentially, TUPE protects the rights of existing employees before, during and after the transfer of the business. TUPE has the effect of ensuring that:
- employees employed by the previous employer when the business changes hands automatically become employees of the new employer on the same terms and conditions; and
- for large businesses, representatives (e. a Union) have the right to be informed that the business is being transferred and should be consulted over any aspects of the transfer which may affect the employees.
The best way to ensure you comply with your obligations under TUPE is to speak with your solicitor who will be examining the organisation’s employment contracts as part of the due diligence process.
Where the dental practice is purchased by way of a share sale, the employees transfer automatically along with the company.
NHS contracts and CQC
The CQC requires that any change of ownership and/or management of a dental practice must be notified and approved of in advance by the commission. This is usually a straightforward process, providing the practice is relatively free from issues, and the notification is made at least ten weeks before the practice changes hands.
NHS contracts, however, can result in more complex issues.
Some dental practices may have General Dental Services (GDS) or Personal Dental Services (PDS) contracts with NHS England. If the practice you are purchasing holds a GDS contract, it will be held in the name of the individual dentist or partnership. GDS contracts are transferred by adding the buyer as a new partner, with the seller ‘retiring’ once the sale is completed. Essentially, a partnership agreement will need to be entered into between the buyer and seller, with provisions to allow for the seller’s retirement once the NHS’ transfer requirements have been satisfied.
PDS contracts are subject to KPIs and do not allow for another partner to be added. They also tend to have a higher UDA rate and are for a fixed term. Buying a practice which holds a PDS contract is slightly more complicated as the PDS contract will need to be converted to a GDS.
Purchasing a dental practice is a significant step, but it need not be fraught with stress and confusion. The key is getting the right professional advisors from the beginning of the process to ensure a smooth transaction.
Saracens Solicitors is a multi-service law firm based opposite Marble Arch on the North side of Hyde Park in London. For information on any of the points in this article, please call our office on 020 3588 3500.
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