Jenin Khanam is a dental lawyer at Charles Russell LLP. She is on the recommended legal advisor list of the British Dental Association and specialises in advising dentists and dental practices, both individual and corporate. She answers some of the frequently asked questions raised by dentists.
Both buying and selling a dental practice involve complicated processes. To ensure that the transactions are completed smoothly and more quickly, buyers and sellers should consider the following:
Without registration with the Care Quality Commission (CQC), it is illegal to practice dentistry.
Sellers should ensure that the practice being sold is registered for surgical procedure, treatment for disease, disorder or injury and diagnostic procedure. The practice must also comply with the decontamination requirements under CQC regulations.
For buyers it is important that they are also registered for CQC purposes and they must ensure that they have their eCRB check in place before the application is submitted. However, complications may arise where a Primary Care Trust is involved. Either way, specialist legal advice should be obtained to ensure that both the NHS Contract and the goodwill attached to it are preserved.
Why does buying and selling seem to take so long?
Failure to use specialist solicitors
One of most frequent questions asked by dentists is 'why does the process take so long?" and there are a number of factors that can influence this.
Delay can be caused when one of the parties uses solicitors who are not familiar with the sale or purchase of dental practices. Using solicitors who deal with dental practices on a day to day basis is more cost effective than using a solicitor who is more familiar with conveyancing or the buying and selling of businesses that do not have the particular features involved in dental practices. Dental practice sales are complex and involve a variety of issues. In addition to the usual property issues, and the elements involved in buying and selling other businesses, there are also regulatory provisions, including
- the facilitation of the transfer of any NHS contract
- the facilitation and practicality of CQC registration
- warranties and indemnities provided and required for the protection of both the buyer and the seller; as well as insertion of limitations of warranties required to preserve the seller's interest.
Inexperienced, non-specialist lawyers will probably charge less, but may end up costing more in the long run, not just in monetary terms but also in trying to sort out issues that have not been properly resolved.
Lack of information
Sometimes, delays occur because a seller has not been advised about the information that a buyer will require. A properly-advised buyer will need to undertake due diligence. Gathering information to fulfil and satisfy the buyer's needs takes time and effort. Properly-advised sellers will recognise that dental practices are complex businesses, and that buyers will need to know they will obtain what they will be paying for.
Working with the practice manager, specialist solicitors will help seller's identify and organise the practice information necessary to progress a sale.
Lack of funding or decisions regarding funding could often cause problems and delays. It is prudent for the prospective buyers to approach a lender at an early stage and find out whether:
- The buyer is a viable candidate for funding; and
- the amount of funding that a lender would be prepared to lend to them
We can help identify possible lenders and deal with the arrangements for the buyer. By obtaining initial approval prior to making an offer the buyer will save a lot of time and expense, and avoid any unnecessary or unrealistic expectations.
Most lenders are prepared to lend, but lending criteria have become stricter. Lenders are now looking to ensure that the purchasing dentist not only has the capacity and capability of running a practice but also the management skills to do so.
Therefore, buyers should be prepared to have not only their finances analysed but also their business skills. We will be happy to review business plans.
Freehold v Leasehold – Which is Best
The length of a lease in comparison to the freehold investment value is the first point to consider.
It may be more cost effective to take on leasehold premises as opposed to purchasing the freehold on the basis that the initial capital outlay would be less. In addition the freeholder retains the responsibility of structural repairs, insurance etc (although the tenant normally pays a contribution towards these costs).
There may be a number of reasons why the freeholder does not wish to sell the freehold. The freeholder may wish to retain the freehold and grant a lease to obtain an investment value yield through rental income or perhaps the freeholder may wish to retain the freehold due to tax reasons.
Most lenders will lend on the security of a long length lease i.e. for a term of more than 10 years and on basis that there is a legal right to renew the lease at the end of the term. Some dentists may be reluctant to take a lease on the basis that the freehold would be a better investment for the long term future of their practice. It may be possible to negotiate a right of first refusal if the freeholder later decides to sell the freehold.
The stamp duty land tax payable for a lease may be less than with buying a freehold. Stamp duty on leases is calculated on the basis of the premium (if any) paid for the lease and rent attracted under the lease and could be less than the stamp duty threshold (i.e no duty payable).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.