Whether the purchase is a box of matches or a multi-national corporation, the first essential is for the buyer and seller to agree on exactly what is being bought and sold. In the case of a dental practice, where different circumstances may leave scope for 'grey areas' or misunderstandings with the potential to later derail a successful transfer, agents will usually ask the seller to sign a heads of terms agreement, effectively a sales prospectus, to confirm the basic terms; for example price, apportionment and any other fundamental terms.
In the majority of cases the matter then proceeds with any detailed issues being negotiated by the solicitors for each party as part of the process of agreeing the terms of the sale and purchase contract; however sometimes parties, particularly corporate buyers, may insist on the lawyers drafting more detailed heads of agreement to narrow the issues that could arise further down the line before the contract is drawn up.
Items included in such heads of agreement will vary but typically will include an agreed total price with specified apportionments between goodwill, the premises, and fittings and equipment. The terms relating to any deposit will also be included, to which both parties should pay close attention. These terms will describe the conditions for the return, retention or reduction of the deposit, which in turn may be influenced, amongst other factors, by the overrunning of a particular time frame or the later discovery of matters which prejudice the purchase price. Setting a timeframe for completion can be especially problematic, as third parties such as finance providers, landlords or primary care trusts and the Care Quality Commission may be involved, who have no interest in expediting the sale.
Since the buyer will incur the costs of due diligence, (in broad terms the investigation into the practice checking key areas such as NHS contracts, compliance with statutory requirements and financial and legal issues, along with investigation of the title to the property) he may wish to be assured he is currently the only interested party and not liable to be outbid at the last moment and thus seek a provision within the heads of terms granting him a period of exclusivity. Conversely, the seller may seek an indemnity for his costs if the buyer should withdraw at a late stage. These assurances, along with an agreement on the part of the buyer to maintain confidentiality, may also form part of the heads of terms, since during the course of the transaction the seller will be obliged to make available to the buyer business information he may not wish to become generally known.
Generally heads of terms are expressed as non-binding, but specific provisions may be expressed to be binding and it is essential that an experienced dental lawyer should review and negotiate the terms before they are agreed and signed.
Not many dentists will have the resources to buy a practice or partnership without some form of external financial assistance. Even the few who are in this fortunate position may still consider borrowing at least a proportion of the funds if their present investments are generating a higher return than the cost of borrowing.
It is prudent, and some sellers will insist, that the buyer has in place, or at least access to, the required funding before negotiations begin.
Dentistry is a relative low risk investment area for lenders, and even in today's tight market the banks are continuing to provide loans to dentists. Whilst lenders have significantly increased the margins above base rate that they are charging since the heady days prior to 2008, when loans of half a per cent above base were the norm, base rate is currently a good four per cent below that prevailing in 2008, so money is still relatively cheap to borrow.
Applications from partnerships are often viewed more favourably than those from sole practitioners, as lending to a partnership spreads and therefore reduces the lender's risk. The lender will invariably require a charge on the business's assets against the possibility of the lender defaulting on the loan repayments and may also look for additional security over other property (for example a home or investment property).
Borrowers should be prepared for the lender insisting on highly detailed financial statements and cash flow and profit forecasts (a business plan) before granting a loan application. They will be looking at the experience of the applicant clinically and also in running a practice. The borrower's personal assets will also be taken into consideration. Where NHS contracts are involved, the bank will require comfort from the solicitor that the contract will be transferred and may also ask to see NHS payment and activity schedules to substantiate the contract income.