A2 Buying and Selling a Practice

Advicesheet

A2Buying and selling a practice

nickryde

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BACK TO COMPENDIUM

© BDA February 2007 2

Advicesheet

Buying and selling a practice A2

What is a dental practice? 3

Choice of area 3

Finance 4

The need for written agreements 4

Valuation of tangible assets 5

Valuation of goodwill 6

NHS contracts 7

Selling goodwill on its own 7

Goodwill when leaving or buying into a partnership 7

Increasing goodwill value 8

Capital Gains Tax 8

Staff 8

Practices with associates 9

Informing patients 9

Selling a practice after a death 10

Advice 10

Sale and purchase agreement - guide to clauses 11

contents pageMost dentists aspire to

owning their own practiceand there are two options

generally available for aspiringpractice owners: buy or buy

into an existing practice orset up a squat practice. This

advice sheet deals with thefactors involved in the buying

and selling of dentalpractices, whilst the BDA's

advice sheet A18concentrates on setting up

new practices.


Buying or selling a dental practice can be a complex process and include factors such asproperty, goodwill, staff, equipment, stock, associate/performer agreements and capitalgains tax, involving a range of professional advisers, including accountants, solicitors,financiers and valuation agencies.

While every practice purchase or sale is unique and generalisations can be risky, thisadvice sheet provides a starting point for buying and selling a practice, includingoutlining basic principles and identifying additional sources of information.

The first question to be addressed is what exactly is being sold or bought. The mostsignificant part of a practice sale is normally the premises from which the business isrun. This means that the property valuations and lease renewal prospects have to belooked at carefully, as well as agreements for any sublet parts of the building.Equipment and stocks also have to be objectively valued.

But just as important are valuations of intangible assets such as goodwill. Where abusiness is sold as a going concern it often has a value over and above the sum of itspremises and equipment. This is the goodwill of patients who return to the practicefor treatment time after time, the loyalty and effort of staff members and thereputation of the business. Patients will need to be informed of the practice changinghands both before and after the sale and clear and watertight agreements must bereached on how this will be done. The staff should be considered and in particularwhether they will continue to work in the practice or be offered redundancy. Theremay be associates, assistants and VDPs whose future work intentions have to bedetermined, as do the future plans of the vendor.

The sale or purchase will entail negotiations on a range of issues, and the objective is aprice which both purchaser and seller can regard as fair, even if for different reasons.For example, a seller might regard his equipment as almost 'given away' but see a gooddeal on the valuation of goodwill. And the purchaser might feel they are paying 'underthe odds' on goodwill, but regard the equipment and stocks price as expensive. Theagreement does not have to be entirely satisfactory so long as buyer and seller aregenerally content.

What is most important from the buyer's point of view is that the practice is a soundcommercial concern. You should undertake careful market research before deciding topurchase a practice - just because a practice is for sale does not mean that it isnecessarily a good business prospect. So the basic advice for every buyer is to get asmuch information as you can about whether the area where you are planning topractise needs you.

Talk to the members of the Local Dental Committee (LDC), the local Primary CareOrganisation (PCO) and to other GDPs. Go to local BDA meetings and talk tocolleagues. Check up on all the available statistics that allow you to compare prospectsin one area with those in another. Take into account transport links with the proposedsite (for instance bus routes or car parking), local competition, the make-up of the localpopulation, unemployment rates, number of children and cultural and ethnic groups, allof which may influence whether you can offer something different. It is also prudent togather available information about the nature of the community in the future, such asplanned changes to the infrastructure, housing developments and population trends.The local authority can help with this.

What is a dentalpractice?

Goodwill

Choice of area

Study the accounts over the past few years to ensure there are no discrepancies andeverything is in order. If you do not understand accounts, get someone withaccounting experience to check them for you and also to teach you about accountingprocesses, as you will need to understand them in the long run to be able to run thebusiness effectively.

You may need to borrow money to buy the practice. Should large amounts of moneyneed to be borrowed, you must ensure that you prepare your case properly. Banksand other potential lenders may well ask for a business plan to be produced, and soyou must be prepared for this eventuality. The potential lender may give you a modelbusiness plan, including cashflow charts. This also helps you to research the potentiallender: their material will tell you what information they are looking for and the waythey want it presented. The BDA's advice sheets C3: Business planning and C6:Financial management in general dental practice provide information on preparing abusiness plan and financial management.

Buyers or sellers should always consult their individual solicitors and draw up formalwritten agreements. Since every sale will be different it is impossible to draw up a'model' sale of practice agreement but there are suggested clauses at the end of thisadvice sheet.

Many solicitors will have dealt with conveying property and businesses but somespecific issues that you may need to address with your solicitor are binding out, work-in-progress (WIP) and failed treatments.

A buyer needs to make enquiries about a seller's future work intentions since theylargely determine the value of the goodwill and it is here that disputes can easily arise.It is advisable for the agreement to contain a binding out clause that will restrict theseller's ability to work in the area for an agreed period. The standard binding outradius will vary from area to area, depending on the housing density.

Sometimes a binding-out clause may not be required, but instead a binding-in clause,whereby the vendor agrees to stay on at the practice for a certain period as anassociate, to assist the buyer in the running of the practice.

NHS work

There should be no NHS WIP when a practice is sold on, as all courses of treatmentshould have been completed. The PCO will make a calculation to ensure that the rightamount of money has been paid for the UDAs completed, on a pro-rated basis.

If there are any incomplete courses of treatment when the practice is sold on, inEngland and Wales the cases can either go to the PCO to arrange for their completionor the incoming practice owner may agree with the PCO that they will complete thecases. The rules regarding incomplete treatment must be followed.

Private work

If there is any private work that has still to be finished when the practice changesowners, then agreement needs to be made between the seller and the buyer on themonetary value of the work done and the amount of money collected thus far for thetreatment and apportioned appropriately.


Finance

The need forwritten

agreements

Borrowing

Work in progress

Binding out


When a dentist buys a practice, it has become customary to keep back a proportion ofthe sale price for failed treatments carried out by the previous owner that will have tobe redone at no charge to the patient. By doing this, the incoming dentist will not bedisadvantaged by work that the previous owner has profited on but needs to berepaired for whatever reason. Free NHS repair and replacement treatment rules donot apply to treatment undertaken by one contractor that is repaired or replaced byanother.

After six months, the remainder of the money should be paid over to the seller of thepractice, along with details of redone treatments and time taken (which must bereasonable). An agreed hourly rate should be written into the contract for the rework.

The property is a major part of the business, with the practice premises generallyeither owned or leased by the seller. Both parties need to be sure what propertyrights are being handed over to the buyer and agree an appropriate value for them.

Property valuation requires advice from local valuers and buyer and seller can eitheragree to accept a single independent valuation, which is less complicated and cheaper,or each obtain independent valuations and negotiate their own price based on these.The buyer will probably want to take into account possible plans for expansion laterand local guidance from valuers on planning rules will be needed. The laws relating toplanning and the development of premises are complicated and buyers must carefullyconsider their long-term intentions for the practice so that comprehensive advice canbe obtained from the valuer. A full structural survey should also be commissioned bythe buyer to ensure that there are no problems with the building.

Turning to leases, the remaining length of the lease, the security of tenure, theprospects for renewal and the tenant's responsibilities are important considerations. Ifthe lease being transferred has only a short time to run and is not renewable, the valuewill be severely reduced. But if the buyer has long enough to become established, say24 months or more, then the practice ought to be able to transfer to new premiseslater without much loss of patients, although an NHS contract in England and Wales willnot be transferred without the PCO's agreement. Legal advice must be obtained onthe wording of a lease, prior to agreeing a purchase.

While much of a goodwill valuation is attached to location and premises, a practicepurchase or sale does not have to involve the premises. Sometimes a buyer may bebuying a practice (the goodwill, the stock and staff) and move it to other premises.Alternatively, the seller may wish to retain an income by keeping the property andleasing it to the buyer. This is often helpful for the buyer, too, who might find thepurchase prohibitively expensive if it initially includes the premises. An option canalways be put into the sale contract for the buyer to buy the premises at a later date.

Machinery and equipment are usually appraised at their depreciated cost, as per thepractice accounts. The value of equipment falls over its working life and so you shouldconsider the initial cost of the equipment and the amount of time until it will needreplacing. It is useful to have an inventory of equipment. Stock should be consideredagainst cost, resale price, prospective sales and quantity of goods in stock.

Valuation of equipment and stocks can also be undertaken independently and, as ageneral principle, the more independent views which can be brought into the practicesale negotiation, the better the chance of a fair outcome. Dental supply houses willlook at dental equipment and consumables (not general fixtures or other equipment),charging a fee, which depends on distance travelled, number of surgeries, and whetherthe person seeking the valuation is a long-standing customer.

Valuation oftangible assets

Property valuation

Leases

Failed treatments

Equipment and stock

Goodwill is an intangible asset, its value influenced by a wide range of factors, somelocal and some generic. The viewpoint of a seller can differ from that of a prospectivebuyer and in some cases it can be very difficult to reconcile the two. Accountants orsolicitors can cope with all the other questions associated with the sale of a practicebut goodwill valuation requires particular care. There are no hard and fast rules forarriving at a valuation of goodwill - rather it is a process of identifying and assessing asobjectively as possible a number of influences.

The main factors influencing the value of goodwill are listed below and although notexhaustive or in order of importance they should give a starting point for negotiation:

● Turnover: What are the gross annual takings of the practice?

● Profitability: What are the profit levels and practice expenses?

● Continuance of NHS contract: In England and Wales, the PCO can decidewhether or not to recontract with the new owner and on what terms. If theydecide not to do so the practice will not be able to provide NHS care in the future,which will affect its goodwill

● Trends in turnover and profitability: It is important to identify any trends overthe previous three to five years in terms of turnover and profitability, along with anyreasons for fluctuations. The properly certified accounts are important for lookinginto gross receipts, profitability and recent trends. Using recent payment schedulesor even the appointment book is not enough although it can be helpful to look at allpractice records over several years in conjunction with the certified practiceaccounts

● Premises and establishment date: How long have the premises been a dentalsurgery? How long has the current seller owned the practice? If the owner isretiring, has the practice turned the corner from being well established to becomingrun-down and tired?

● Practice amenities: Look at the overall condition of the practice and facilities.Do practice staff work as a strong team? Consider the influence of well-liked staff

● Services offered: What is the type and range of treatment undertaken? Forexample, does the practice offer orthodontics or cosmetic treatment?

● Size of practice: How many patients and surgeries are there? Is there any spaceto expand?

● Patient numbers/characteristics: The ideal is a core of regulars plus a flow ofnew patients. Not only should you look at patient numbers, but also what type ofpatients are they (NHS, private or members of a capitation scheme). Do theyattend when in pain or regularly? Do they have high treatment needs?

● Associates: A large proportion of practice receipts may have been built up byassociates or, possibly, assistants. It is important to establish their future plans

● Area: Think about the type and characteristics of the locality. Is it industrial,commercial or residential? Are there potential new patients in the area?

● Competitors: What is the dentist/population ratio? How many other practicesare there in the area? Are there premises in the area that new competitors couldreadily set up in? There may be a number of practices nearby but not offering thesame services as the practice being sold - it may be a specialist practice, forexample, or a largely private practice surrounded by NHS practices

● Seller's plans: Why is the seller disposing of the practice? What do they plan todo? These are very important questions - sellers may own other practices that theyare retaining and patients may therefore move to their new practice, reducing thegoodwill

● Buyer's background: Has the prospective purchaser previously worked at thepractice as an associate or assistant? If so, they may have a claim to some of thegoodwill of the practice and this will reduce the valuation of goodwill to be bought.


Valuation ofgoodwill


There are several ways of reaching an assessment of the value of goodwill in the light ofthese factors, and advice can differ. This is an area where expert guidance andprofessional review of the practice's financial position is essential.

You can seek professional advice from a dental trading firm with a specialist valuationdepartment, or from financial advisers or firms of surveyors and valuers who advertiseregularly in the British Dental Journal. Such people normally have wide experience invaluing practices and will be able to take account of the local and other factorsinvolved. A list of specialist agencies is available from the BDA's Business Team.

With the introduction of the new NHS contracts in England and Wales, it is notguaranteed that the buyer of the practice is going to be able to secure the same NHScontract as the vendor, or even a contract at all. Once a contract is broken (forinstance by a practice being sold) it gives the PCO an opportunity to redistribute theirresources to best meet the dental needs of the population at large. This means that ifthey decide to give the incoming dentist a contract, the terms may not be the same andthey may have to do more UDAs for the same amount of money or be given a reducedcontract value.

Therefore, as soon as a vendor knows who the buyer is, they should approach thePCO with the potential new owner's credentials and try to secure the same contractfor the buyer, as this will increase the goodwill value for the vendor and secure amonthly income for the buyer.

There are other variations to this, using partnerships or companies, but these shouldnot be considered without taking professional advice. For further information on theseschemes, please contact the BDA's Business Team.

Goodwill can be sold on its own. For example, in the case of a retiring practitionerwhose practice was run from his home and who does not want to move house, thereis a price to be paid for the patient records and a letter from the retiring dentist toregular patients telling them of the new practice arrangements. But because thepatients will no longer be able to attend at the same premises, the value of goodwillmay be significantly reduced. It is also essential to check carefully the nature ofgoodwill in these circumstances and to look at the type and amount of treatmentcarried out, along with the age range of the patients.

The principles for valuing the goodwill within a partnership are the same as for a single-handed practice, except the total value must be divided according to the shares of thepartners. For example, if a practitioner is buying into a partnership with three existingpartners and it is intended that all four will have equal shares, the new partner will bebuying 25% of the goodwill. If the total goodwill is valued at £60,000, the cost to thenew partner of purchasing their share of the goodwill will be £15,000. However, withpartnerships there may be other complicating circumstances - for example theownership of the building. It is therefore essential that these issues are understood andthat the new partner enters a proper partnership deed with the existing partners.

NHS contracts

Sellinggoodwill on its own

Goodwillwhen leavingor buying intoa partnership

Goodwill can be enhanced by

● Redecorating – the better the appearance of the practice, the higher the goodwillvalue as it becomes more attractive

● Ensuring records are up-to-date and in good order. If the records (both dental andbusiness records) are not in good order, it will give impression of poorly-runpractice and thus a reduced goodwill value

● Making sure profits are maximised and appointment books are full

● Resolving any outstanding issues within the practice

● Talking to the PCO about transferring the NHS contract to the new owner - if theywill transfer the contract, especially without a change in the terms, then this canhave a significant impact on the goodwill value

● If premises are leased, ensuring there is a good period left on the lease or extendingit so that new owner will have security for the practice.

The sale of a dental practice may involve liability to pay Capital Gains Tax (CGT) on theproceeds. CGT becomes payable whenever a profit (a 'capital gain') is made on thesale of property. The precise way in which the profit is calculated can be extremelycomplex and so you will require professional advice in order to assess your potentialliability.

For an overview of how gains are calculated, please see the BDA's Advice Note 26. Italso discusses rules that cover deferring payment if the proceeds are reinvested inanother business or property which may be advantageous for vendors. It is highlyrecommended to seek advice on CGT before selling your practice as it may be possibleto structure it in a tax advantageous way.

The position of the practice's staff needs careful consideration, since employmentlegislation protects them on the sale of a business (Transfer of Undertakings (Protectionof Employment) Regulations (TUPE)). There are certain conditions but, in essence,employees who have worked at a practice for more than one year cannot bedismissed. It is not enough for the buyer to say that they do not like a particularmember of staff - they are considered part of the business.

The terms and conditions in the employment contracts of staff transfer to the newowner. Sellers should ensure that the contracts and job descriptions of staff are up-to-date and buyers need to ask to see these documents. The seller must follow a setprocedure and must give the new owner an Employee Liability statement. Furtherinformation is contained in advice note 20 mentioned below.

It may be possible for the new owner to make alterations to working practices but youneed to be clear about what changes you want to introduce. Under the regulations,you should have an 'economic, technical or organisational reason' for proposedchanges, which should be discussed with staff and their views sought. Even if the staffdo not agree to the changes, it may still be possible to implement them, but everyeffort should first be made to train staff in any new working practices. For furtherinformation on TUPE, download the BDA's advice note 20: Transfer of Undertakingsfrom www.bda.org or contact BDA Practice Support.

Remember that good staff are valuable assets and will help a purchaser to retain thepractice's patients.


Capital GainsTax

Increasinggoodwill value

Staff


The transaction may mean that fewer staff are required. As the incoming employer,this will be the responsibility of the buyer. The buyer must ensure that it is a properredundancy situation where the need for employees to do work of a particular kind hasceased or diminished for an 'economic, technical or organisational reason'.

If redundancy is necessary, the employee may be entitled to redundancy payments. Itis necessary to decide whether the payments are being made by the seller (in whichcase the purchase price may rise) or by the buyer (in which case the price may belower to offset the expense). Either way, it will be the buyer who will be legallyresponsible if the proper procedure is not followed. There are statutory minimumamounts for redundancy pay based on age and length of service. More detailedguidance is provided in BDA advice sheet D10: Redundancy, which includes a table forthe calculation of redundancy payments.

Trainer appointments are personal and not transferable by sale of the practice. Apurchaser cannot therefore assume appointment as a trainer after the purchase of anestablished training practice.

The purchase of a practice with associates needs particular care. Associate agreementsname the current practice owner as a party and are personal to the individualsconcerned. If the buyer wants the arrangement to continue, a new agreement withthe associate must be entered into. Buyers should seek to speak to associates at theearliest opportunity once the purchase has been agreed; however the associate has noobligation to the buyer until a specific agreement has been reached.

Where the agreements between seller and associates are verbal or have beeninadequately drawn up, all parties need carefully to consider where they stand. Anassociate without a clear agreement on protecting the owner's goodwill may decide toleave and induce patients to a nearby practice. If patients do leave the practice, anyclaim for misrepresentation would be against the seller, not the former associate.

Long standing associates may claim that their long presence in the practice justifiessome share in the ownership of the practice's goodwill. They may seek a financialarrangement with the seller, before the seller sells on to the buyer. If this happens, thebuyer is on reasonably safe ground since they will be securing the goodwill from boththe seller and the associate. If a preparatory settlement is not made, the buyer mayneed to think about 'buying up' the associate after the sale, with the practice sale pricereduced accordingly. The buyer could then re-establish a conventional associate-practice owner relationship, in which goodwill belongs entirely to the buyer as the newpractice owner.

Alternatively, the buyer may decide to take the risk of the associate leaving and setting upnearby. In some circumstances, where a dental practice has existed on a particular sitefor a long time and is well known in the local community, this could be a risk worthtaking.

It is essential that patients are told about the practice sale. Preferably the seller willwrite to the patients, recommending the buyer for their future care, though the buyercan also contact the patients. If the buyer wishes the seller to take some action, thisshould be specified in the sale agreement.

Model letter from seller to patients

The content of this letter will depend on the circumstances of the sale, for example

Practices withassociates

Redundancy payments

Agreements

Finanical agrangements

Redundancy

Vocational dental practitioners

Informingpatients

that the purchaser was previously an associate or already owns practices in the locality,or that a dental company has bought the practice. The letter below is intended for asituation where the purchaser has never worked at the practice or in the locality.

Dear ……….

I am delighted to be able to tell you that the Happy Smiles Dental Practice has beenbought by Dr John Smith. From (date), I will be retiring and in future, if you arehappy with this arrangement, Dr Smith will provide your dental care.

I am very sad to be retiring after X happy years at the practice but I am very pleasedto be leaving Dr Smith to care for my patients. Dr Smith qualified in (date) at(dental school) and for the last X years has been practising in Y. His particularclinical interests include Z. Dr Smith will be making changes and improvements tothe practice that will, I am sure, result in an even better standard of care andservice.

I would like to take this opportunity to thank you very much for your pastconfidence in the care we have provided for you and I very much hope that you willstay with the practice in the future.

Dr Smith will shortly be writing to you separately about future practicearrangements but in the meantime, if you would like any further information, pleasedo not hesitate to contact me.

Yours sincerely

For three years after a practitioner's death, the Dentists Act permits a non-dentistwidow, widower or other representative to carry on the practice. This is to give therelatives time in order to deal with the business and to sell it.

However, if there is an NHS contract held at the practice which is in England andWales, the contract terminates after seven days of the contractor's death unless therepresentatives are able to get another dentist in to take over, whereby the contract isextended for up to three months in the first instance. The contract can then beextended by another six months with the agreement of the PCO. These extensionsare so representatives of the deceased can find a buyer for the practice and completethe transaction.

There are often strong arguments for disposing of a practice as quickly as possible,while there is still saleable goodwill. Any lay person left with a practice to run cancontact the BDA for advice. If necessary, property can be kept in the widow's orwidower's hands, with a sale of equipment, stocks and goodwill dealt with separately.

See BDA advice Sheet B4: What to do when a dental practitioner dies for moreinformation.

Once a specific sale or purchase is contemplated, advice from an accountant andsolicitor will be essential, especially those with experience of dental practice work.Where a property sale or purchase is involved, a local valuer's advice should always betaken. A local valuer will also be familiar with local planning rules.


Selling apractice after

death

Advice

NHS contract


When choosing advisers, take into account the following factors:

● Local reputation: Ask around and see who other dentists recommend

● Cost: Professional advice can be expensive and it is worth asking for quotes fromseveral firms in order to gauge the cost of the sale

● Rapport: Most professional advisers will offer a free initial consultation to offer theirservices to you and to build a rapport with you - it means that you can get to knoweach other without having to commit to their services

● Results: What results have they had in the past? Can they provide a name ofsomeone who will provide a testimonial for their service?

Dental supply houses will undertake valuations of equipment and dental consumables.A number of agencies dealing with practice sales and the valuation of goodwill advertiseregularly in the British Dental Journal and again a list is available from the BDA. Themethod of charging for these services is generally to charge the vendor a percentage ofthe selling price or, in the case of leasehold properties, based on the yearly rent.

The BDA produces a range of advice sheets, which may also be useful for someonetaking over a practice for the first time. See the website at www.bda.org or contactBDA Shop (020 7563 4555/[email protected]) for the latest list. Members withgeneral questions about the sale or purchase of a practice can always contact the BDA'sBusiness Team on 020 7535 5864 or at [email protected]

Practice sales are complex and individual and the British Dental Association does notproduce a "model" purchase or sale agreement. The clauses described below are a helpfulstarting point. They are only for guidance, as the actual contract should be drawn upbetween the buyer's and seller's solicitors.

Sale and purchase

This clause will state that the seller will sell "with full title guarantee" and the buyer willbuy the assets and goodwill of the practice on the date of completion as a goingconcern and (assuming this is the case) free of all charges in favour of third parties.

The price

The price will be stated and will be apportioned as to part for the goodwill, part forany uncompleted contracts, part for fixtures and fittings and part for the property. It isadvisable for both buyer and seller to discuss with their valuers and accountants howthe price should most appropriately be apportioned. The stock of dental materials willbe valued on completion and then paid for by the buyer.

Normally a deposit of 10% will be paid when the agreements are exchanged.

Apportionments

Prepayments made by the seller in respect of goods which have been ordered but notdelivered or services contracted for but not rendered will be refunded by the buyer tothe seller.

Employee rights and expenses, including holiday pay and holiday entitlement accruedbut not taken, should be apportioned.

Practicesale/purchaseagreement -guide toclauses

Book debts

These will remain the seller's property, but the buyer will endeavour for the 12 monthsfollowing completion to recover them on the seller's behalf. After 12 months the sellerwill be entitled to collect any such outstanding debts direct from the debtor.

Warranties (undertakings on which the seller can be sued if found to be untrue and thebuyer thereby incurs a loss)

It is usual to list the seller's warranties in a Schedule. The seller repeats the warrantiesimmediately prior to completion and confirms that they will remain in force aftercompletion. If the statements regarding warranties are going to be qualified in any way,this should be provided for separately in a Disclosure Letter.

The Seller's warranties: (this is not an exhaustive list and should be tailored to thespecific requirements of the Buyer)

● The seller is absolutely entitled to the goodwill of the practice, all fixed andmoveable plant and equipment, the stock-in-trade, all uncompleted contracts,records and the premises and no third party has any claim on such assets

● The practice accounts for the latest year ending are true and accurate

● The seller is not involved in any litigation relating to the practice, none is pending orthreatened and the seller is not aware of any facts which could give rise to it

● The seller's fixed and moveable plant and equipment are in good repair and arecapable of doing the work for which they were designed and/or purchased

● Since [date], the practice has been carried on as a going concern

● The seller has not defaulted under any of the uncompleted contracts

● The seller has properly operated the PAYE system and has complied with all itsreporting obligations to HM Revenue & Customs

● The seller has disclosed to the buyer's solicitors all insurance policies relating to thepractice and nothing has been done/omitted to render any policy invalid

● The books and records are kept in accordance with the requirements of theGeneral/Personal Dental Services Regulations and the Business Services Authority

● It is common to list all full-time and part-time employees in a Schedule and toconfirm that the details of the employees are true and accurate

● All employment contracts have been disclosed to the buyer's solicitors and thereare no other existing terms and conditions of employment

● The seller has not breached any service contract and nor is the seller liable for anyredundancy payments, wrongful or unfair dismissal claims or for failure to complywith any employment tribunal order

● The seller has not made any gratuitous payment in connection with the actual orproposed termination or suspension of an employee

● It is usual to list all Associates in a Schedule and for the seller to confirm that thereare no other Associates in the practice and that all agreements drawn up betweenthe seller and the Associates have been disclosed to the buyer and are completeand accurate in all respects.

Discharge of liabilities

All the seller's debts and liabilities at the date of completion, except for those expresslytaken over by the buyer, will remain the seller's responsibility.

Uncompleted contracts

All uncompleted contracts will, subject to the necessary consents of third parties, beassigned to and completed by the buyer. The buyer will indemnify the seller against alllosses arising in respect of such contracts.



Uncompleted treatment

In respect of NHS treatment:

● The seller will complete as many courses of treatment as can properly becompleted prior to the date of completion and will be entitled to all theremuneration for such treatment

● The seller will terminate all inactive patient treatment plans up to completion

● If a patient is treated by an associate of the practice both before and aftercompletion, the fees will be split between the seller and the buyer and any paymentto the Associate adjusted accordingly

● The seller will supply details to the buyer of all uncompleted courses of treatment,if applicable

● The seller and the buyer will inform the Primary Care Organisation of the terms ofthe agreement

● Remuneration in respect of uncompleted treatment for non-NHS patients ifundertaken prior to completion will be billed by and paid to the seller and, ifundertaken after completion, to the buyer

● All continuing care and capitation patients registered with the seller will betransferred to the buyer or his/her nominee.

Employees

The seller will comply with any duty to give employees information about the proposedtransfer of their contracts of employment to the buyer.

The seller will indemnify the buyer up to completion for any breach by the seller of anyemployment contract or any statutory breaches and for any liabilities arising in respectof death, personal injury, disease, illness or discrimination if the cause of action aroseprior to the completion date.

Associates

The interests of the seller and the buyer may be very different. Remember thatassociate agreements are personal to the parties and cannot be assigned.Arrangements will vary according to whether the purchaser wishes to engage theassociates.

The seller will notify all associates of the sale of the practice, ensuring that the noticeperiod is adhered to. Where the purchaser wishes to engage the associate, it will behis responsibility to negotiate new contracts with each associate individually. The sellerwill cooperate to that end.

Binding out agreements apply between the seller and the associate. If an associatedoes not agree to be engaged by the buyer on the same terms and conditions as beforeand the goodwill of the practice is subsequently damaged, the buyer may want anindemnity from the seller. Such an indemnity would be difficult to quantify and it maybe better for both parties to take this into account in the purchase price.

Premises

Appropriate conveyancing provisions need to be included.

Completion

On the completion date, the risk in the practice assets passes to the buyer and title toany assets which are capable of delivery passes on such delivery.

At completion:

● The seller hands over the relevant assignments or transfers including the assignmentof goodwill (it is usual to annexe an agreed draft)

● The buyer pays the balance of the price for the goodwill, uncompleted contracts,the fixtures and fittings and the property

● The buyer pays for the stock-in-trade as agreed in the Sale Agreement.

If completion is delayed, other than due to the seller's default or delay, the buyer paysinterest at a specified rate.

Value Added Tax

Both parties will endeavour to ensure that the sale of the practice is treated neither asa supply of goods, nor as a supply of services for VAT. If VAT is held to be payable, thebuyer will pay the seller such tax within 30 days of delivery of the appropriate taxinvoice. The Seller may retain all credit for VAT on goods and services supplied to himand any overpayment of VAT prior to completion.

Conduct of the practice prior to completion

The parties will collaborate fully on all matters prior to completion. During thatperiod:

● The seller will run the practice in the ordinary course of business and on a normalcommercial basis

● The seller will not, without the buyer's consent:

o Incur any capital expenditure for which the buyer would become liable

o Enter into any contract which cannot be terminated without compensation or on one month's notice, or is not in the ordinary course of business

o Engage any new employees or associates

● The seller will indemnify the buyer against any loss the buyer incurs through theseller's failure to comply with this requirement.

Further assurance and use of name

The seller will give the buyer all reasonable assistance before and after completion ininvesting the full benefit of the practice in the buyer and ensuring that the buyer hassole rights to use the name of the practice

Confidentiality and restrictive covenants

The seller will observe strict confidence while information regarding the sale is notpublic knowledge. For an agreed period following completion the seller either alone,jointly, with some other person or as locum tenens will not within an agreed area:

● Compete with the buyer's continuance of the practice

● Solicit for treatment persons who had been patients of the practice in the last [X]years prior to completion

● Induce any employee to leave the buyer's employment

● Disclose any information concerning the practice

Insurance

The seller will keep insured the assets to be transferred at completion and will arrangefor a note of the buyer's interest to be endorsed on the relevant insurance policies.



Access to documents and information

The buyer will allow the seller to inspect and copy all records that the seller handsover to the buyer for six years from the date of completion.

Announcements

The seller will announce by letter in agreed form to all suppliers and patients of thepractice the transfer of the practice and endeavour to effect a proper introduction ofthe buyer to all the patients.

The parties will make an announcement to the employees of the practice in an agreedform.

Neither party will make any other announcement without obtaining the other's priorconsent.

Withholdings

The buyer will withhold £X,XXX from the sale price for a period of six months tocover any failed courses of treatment carried out by the seller. After the six monthperiod has elapsed, the remainder of the money will be paid to the seller, and fulldocumentation provided on any courses of treatment that have been redone.

The failed treatments will be repaired at the charge of £XXX per hour.

Miscellaneous

There will then usually follow a clause covering miscellaneous matters, such asresponsibility for costs, that the agreement should be binding on the parties'successors, that no variations should be effective unless in writing and dealing with thegiving of any notices under the agreement.

Conclusion

Finally, it must be stressed again that there is no "standard" transaction. Both parties tothe agreement should contact their professional advisers at an early stage in theproceedings to obtain advice appropriate to their circumstances. And remember thatany leasehold property involved will constitute a separate undertaking.

British Dental Association● 64 Wimpole Street ● London W1G 8YS ● Tel: 020 7563 4563 ● Fax: 020 7487 5232

● E-mail: [email protected] ● www.bda.org ● © BDA February 2007

A2 Buying and Selling a Practice

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Transcript of A2 Buying and Selling a Practice