Practice sales – an end to delays?
Stephen Knowles explains how time and money can be saved
This article was first published in The Dentist June 2016
In recent years there has been a substantial increase in the time taken to undertake the legal work associated with dental practice sales. It is not uncommon for the entire process from offer to completion to now take in excess of 12 months. The longer the timeframe the more frustration there is for vendor and purchaser and ultimately a greater chance of the sale falling through. This incurs expense on both sides and usually for the vendor the deferment of retirement plans. So why has nine to 12 months become the norm, for a process that used to take three to six months and how can it be made quicker?
Three main reasons
From experience, I have identified a number of reasons for this including:
1. Poor due diligence processes (the information you need to supply to a buyer, their solicitor and bank).
2. Failure to complete CQC requirements accurately and on time.
3. A general misunderstanding of NHS contract transfers.
One or all of the above is guaranteed to delay the sale and is damaging to the relationship between seller and buyer. A ‘blame game’ can ensue causing further delays and expense.
So what can we realistically reduce the legal process to? Technically, three months is sufficient, although this is perhaps a dream scenario where all parties do what they should when they should. In practice five to six months should be realistic.
Let’s looks at the three top ‘show stoppers’ in further detail and some suggested solutions to speed things up.
Due diligence (DD)
The DD stage is probably the greatest culprit for causing a delay to practice sales. Essentially, this is the preparation of all the information a buyer requires about the business and property (or lease). DD has traditionally taken up to several months depending on the state of the practice documentation and systems. However, I have identified that it is the approach to collating information and not the availability of information that causes delays.
Solution: at PFM Legal we use a standard DD questionnaire which is provided as soon as the practice is marketed. This allows the vendor to collate the relevant documents immediately and ensures they are available by the time the buyer’s solicitor requests them. The result is that the DD process is largely complete before the formal legal process has started.
The CQC application as a whole takes up to 12 weeks with individual parts being completed by the buyer and the seller. The CQC is notoriously strict with its response to inaccuracies on these forms and rejections and subsequent delays are common.
Solution: some intervention and help with the completion of the forms prior to submission can save significant delays later on. The common grounds for rejection by the CQC and how to avoid them are known to specialist dental solicitors.
NHS contract transfer
Upon exchange of contracts, notices are served on the Local Area Team to add the incoming buyer(s) (if individuals) as partners to the NHS Contract. NHS England is entitled to 28 days’ notice and will only add the buyer(s) as partners if the CQC has indicated that it is happy with the buyer’s (or buyers’) application(s) – hence the importance of early submission of the CQC forms. Delays associated with NHS contract transfers are mostly caused by a misunderstanding of how NHS England deals with limited companies.
Solution: using a specialist with experience of transferring NHS contracts, including the mechanics of partnerships and limited companies, is a large part of the resolution. Dealing with all parties – the vendor’s solicitor, purchaser’s lender and accountant requires a good understanding of how a dental transaction fits together. This can only be gained from experience.
The timescale of any sale is dependent on both purchase and vendor and, as such, it helps if both parties use a solicitor who is dentally aware. Mismatched solicitors often spell trouble for a transaction – resulting in undue delay and expense. Choose your advisers carefully.
Stephen Knowles is a dental sector specialist solicitor for PFM Legal, a firm in the PFM Dental Group.