Buying a dental practice can be exciting, but you want to make sure you start your business off on the right foot. Each state and territory has slightly different requirements for buying a dental practice. This article will help identify the key issues to watch out for during your purchase.
Heads of Agreement
Once you and the vendor (the seller) have agreed upon the commercial terms of the sale contract, you should think about whether you also need a heads of agreement. A heads of agreement contains the key commercial terms you and the vendor have agreed upon and it can be legally binding. However, generally, a heads of agreement is non-binding. In this case, the proposal will not become binding until you and the vendor execute the formal sale of business contract.
Negotiating a heads of agreement first will mean that purchasing the dental practice will be a smoother process and legal costs will be kept low because you and the vendor have already negotiated the key commercial terms. These key commercial terms include:
- settlement date;
- price; and
- any other conditions of the sale, such as vendor finance or transferring the lease.
Due diligence is crucial throughout the process of purchasing your dental practice. A rigorous approach to due diligence will help you to assess whether the vendor has run the dental practice correctly and in accordance with health and regulatory requirements. Due diligence involves a thorough search of the dental practice’s:
- financial and legal documents;
- employment or supply contracts;
- development approvals or certificates;
- council approvals and all licences that might be necessary;
- HICAPS preferred provider licence; and
- lease documents, including
- a copy of the lease or licence for the premises; and
- a copy of the equipment leases.
To check whether the equipment is on loan, you will need to search the Personal Property Security Register (PPSR). You will need details of the equipment model numbers so that you can conduct a thorough search. In addition to this, you want to make sure that the equipment is in good working order.
Other things you may wish to consider are the hygiene and patient lists. In particular, you should consider checking:
- the volume of patients who have visited the premises over a specific period of time;
- if there is a HICAPS preferred provider service, how many patients are part of the service;
- whether there are new and incoming patients;
- how well the business keeps to the hygiene regulations; and
- if there are any important things to know about the vendor’s reasons for selling.
Further information on these issues would be useful for you to assess the success of the business, so you can accurately decide whether this is the right purchase for you.
Conducting these searches would also allow you determine whether the equipment is on loan from another party or if there is any outstanding liability.
Sale of Business Contract
Once you have completed your due diligence and have decided you wish to proceed with the purchase, either your lawyer or the vendor’s lawyer can draft a sale of business contract. Typically, a standard contract for sale of business is used, which can be found through the relevant real estate body in your state or territory. Normally, the vendor’s lawyer will amend these contracts to suit your purchase by including a series of special conditions. These special conditions will be binding once they are formally executed. You will want to ensure that the lawyer drafts the special conditions clearly and correctly to avoid any confusion once you and the vendor sign the document.
The standard contract will need to include specific details such as:
- the business name and location;
- the purchase price (divided into assets, equipment and goodwill);
- a detailed description of what is included as part of the sale;
- any warranties or promises that the vendor is making to you;
- the settlement date;
- when the liability passes from the vendor to you;
- which contracts can be terminated and which are being transferred;
- whether there is any intellectual property the vendor needs to transfer;
- apportionment of the rent and utilities at the date of settlement; and
- if there is a lease, whether the sale is conditional upon the lease and how the vendor will transfer the lease to you.
In most circumstances, you also want to ensure that there is a restraint of trade clause in the contract. A restraint of trade clause prevents the vendor from opening a new dental practice nearby within a certain time frame or poaching customers or staff.
Typically, most dental practices have a contractor’s agreement with their staff. Often, the new purchaser will offer each staff member a new contract.
Transfer of HICAPS
When you are buying a dental practice, you will also want to ensure that the vendor will transfer the HICAPS preferred provider to you. You will need to ask the vendor to inform HICAPS to change the ownership of their dental practice.
Typically, this process takes three to four weeks. As part of the process, HICAPS will contact you when it completes the transfer.
Transfer of Lease
If the dental practice includes a lease, you should ensure the landlord agrees to transfer the lease to you. The landlord may give consent before the business sale and settlement. The steps needed to secure this consent will vary depending on your state or territory and whether you have a retail or commercial lease to transfer.
Generally, if it is a retail lease, you will need to view a disclosure statement about seven to fourteen days before the vendor can transfer the lease. Each state and territory has different disclosure requirements, but it is likely that the landlord, the assignor (the vendor) and assignee (you) will need to follow strict rules, which include providing a copy of the lease.
In most states, you and your lawyer will have to sign a legal advice statement for a retail lease and your accountant must sign a financial advice statement. This is to demonstrate that you have received proper advice and understand your obligations and rights in relation to the lease.
Buying a dental practice is an involved process. You have to ensure you conduct due diligence and receive professional advice on the contract and lease. Doing so will give you a good idea about whether it is a worthwhile purchase.
If you need assistance with buying a dental practice, contact LegalVision’s business purchase lawyers on 1300 544 755 or fill out the form on this page.
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