Dental Practice sales and purchases – what are Pre-emption Agreements and do you need one?

Many of our selling clients who are retaining the freehold property and granting a lease to the buyer of the dental practice are asked for a pre-emption agreement. Often we are told at the outset of the transaction that the seller has ’already agreed to this’ only for it to become clear quickly that the seller has not really understood what the pre-emption right entails. These agreements are not as simple as one might envisage and it is important to take advice before agreeing to any legal document.

What are pre-emption agreements?

A pre-emption right is a legally binding agreement which gives the beneficiary the right of first refusal to purchase the property in the event that the landowner wishes to sell the property within the fixed period set out in the agreement.

The price of the property is stated in the pre-emption agreement; this will usually be a specified price or the market value of the property following a valuation at the time of the pre-emption being triggered.

Alternatively, the pre-emption agreement may simply require the landowner to notify the beneficiary of their intention to sell the property and allow the beneficiary to make an offer, which may be accepted or rejected by the landowner. It is important to note that the onus of triggering the pre-emption agreement will fall on the landowner when they decide to sell the property.

Pre-emption agreements in dental transactions.

In dental transactions, a pre-emption agreement may be preferred by a buyer where they intend to purchase the practice property that they will be carrying out the dental business from, but now is not the right time, often due to funding.  A pre-emption agreement will be entered into at the same time as the lease with the seller, on completion of the business sale. However, in dental situations there is little benefit from the seller’s point of view on the basis that they are tied into an agreement which limits their options when selling the property and means that they have various hoops to jump through before either selling to the buyer of the practice or indeed a third party.

It may be appropriate for a fee / premium to be paid by the buyer to the landowner for the benefit of the pre-emption agreement though this figure and whether one is appropriate in the current market conditions can only be advised by a qualified valuer.

If a landowner decides to grant a pre-emption to a buyer, they may also wish to consider whether they would like provisions included in the pre-emption agreement which allows them to transfer or gift the property to third parties for example certain family members, without triggering the pre-emption and having to first offer it to the buyer. These provisions need to be carefully drafted into the pre-emption agreement.

Pros and Cons.

+ A pre-emption agreement will provide the business buyer with some comfort that they will have first refusal to purchase the property from which the practice operates, should the landowner wish to sell.

+ The pre-emption agreement could save the landowner from needing to market the property when wishing to sell, as they already hold an agreement for the sale of the property with the potential buyer, where this is still suitable.

– The pre-emption agreement should be protected by a restriction on the landowner’s title register at the Land Registry, this will alert any other potential purchasers of the land that the landowner’s sale is subject to the pre-emption agreement affecting the property. This is beneficial to the proposed buyer but not for a landowner as this may put other potential buyers off showing interest in purchasing the property.

– The onus is on the landowner to trigger the pre-emption agreement when they decide to sell, without the trigger the opportunity to purchase the property will not become available to the proposed buyer.

Things to consider.

Where you intend for a pre-emption agreement to be entered into upon completion of the dental practice sale and purchase, it is important to notify your property solicitor at the outset (or as early as possible) of the transaction. The use of pre-emption agreements may influence the negotiation of the dental practice sale and purchase.

It is important to make sure that you enter into the right type of pre-emption agreement for you, the options can be discussed with your property solicitor who can make sure a pre-emption agreement is drafted to reflect when you intend to purchase the property.

An informal discussion and agreement with the landowner and beneficiary would not be capable of being relied upon without such an agreement being committed to writing. Therefore, it is important to instruct a property solicitor, whether selling or buying, to assist in devising an agreement that protects your interest and provides you with a degree of certainty regarding how you could come to acquire or sell a property going forward.

A pre-emption agreement may be what supports your plans before you have the opportunity to put them into action!

If you would like to discuss these issues in more detail please contact our specialist commercial property solicitors (Laura Frensham or Caroline Oldfield) via 01904 670820 or by email lf@pfmlegal.co.uk or caroline@pfmlegal.co.uk