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Conditional exchange of contracts on the sale of a dental practice- what is the norm?
Thursday 20th October 2016

Exchange of contracts is the point in a sale or purchase of a dental practice at which the deal becomes binding. The buyer often puts down a 10% deposit and both parties make a formal commitment to the transaction proceeding. However, when dealing with dental practice sales and acquisitions, this commitment is often conditional.

In an ideal world when contracts are exchanged, each party should give the other party a binding guarantee that it will complete the transaction on the agreed date. However, the dental world is unfortunately not this simple. This is because for many transactions the parties are at the mercy of the NHS and the CQC providing appropriate approvals.

For a GDS contract to change hands, the Local Area Team will be given notification of a new partner. A seller would not usually want this to be done until the buyer has made a formal commitment to the practice. Therefore, the notices are often sent to the NHS on or very shortly after the date for exchange (although on occasion the parties will consider serving these notices early with a view to hitting a certain target date for the transaction to be finalised). Exchange of contracts is often then made conditional upon the NHS accepting the notification of the new partner. Although it may be extremely difficult for the NHS to refuse the partnership request, the buyer will want comfort that this has been done and that their name will appear on the GDS contract in the future.

In England, a contract is also likely to be made conditional upon the CQC providing a letter of intent. Although the CQC will not register a buyer with the practice until following the transfer of the business, it will usually issue a letter confirming that it has processed the application and that registration will be possible provided it receives certain notifications before and on completion.

A sale contract may also be made conditional upon the buyer being included in the performer’s list and that it intends to take over the treatment of patients following the purchase.

Less commonly, contracts could be exchanged conditional upon the buyer raising its bank finance. However, it is more usual for a buyer to have all of its finance in place before formal exchange. Either way, a buyer will want 100% commitment from its bank to lend before exchanging contracts without a finance condition. If it isn’t possible to get the bank finance in place and there is pressure on the deal for exchange of contracts within a set timescale, the parties may consider this provision. However, from a seller’s perspective it is something that should be avoided if possible, as making the deal conditional upon raising finance is the equivalent of saying ‘yes I will buy it, if I can afford it’.

Contracts may also be exchanged conditionally upon property issues being resolved. For example, when selling your practice, it may be sold conditionally upon your own landlord granting a new lease to the buyer. Alternatively, if you have an existing lease which is transferring to the buyer, the deal might be conditional upon the landlord consenting to the transfer (which may be a requirement in your lease). Another example of where a transaction could be conditional upon property issues being resolved, is where the property is occupied by a third party. Here the deal could be conditional upon such third party vacating the premises first.

With so many conditions common on exchange of contracts with dental practice sales, the parties need to be aware that a formal commitment is not a guarantee that completion will take place. However, steps can be taken to ensure that the conditions are kept to a minimum and that the parties commit as far as possible to the deal that they both want to achieve. 


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Buying a dental practice with underperformance issues, how your dental lawyer can protect against loss or reduction in value of an NHS contract
Wednesday 12th October 2016

In any financial year, an NHS practice must perform no less than 96% of its contracted UDAs, and by the halfway point in the year the requirement is to have performed at least 30%. Failure to achieve this can lead to NHS England (“NHSE”) serving a breach notice on the practice.

Where underperformance is an issue for a practice, NHSE has powers to revalue a contract and this could mean it imposes a lower UDA volume and/or a lower UDA price. In more dramatic circumstances NHSE may also choose to withdraw the NHS contract completely.

In the past NHSE has been more likely to take action only where there have been consistent previous breaches over a prolonged period. However, with a squeeze on NHS budgets we may start to see NHSE taking action by reducing contract values based on single year breaches or practices that have fallen only just short of their target.

If you are buying a practice you are, unfortunately, not able to defend yourself by claiming that the underperformance related to the actions of the seller. Where an NHS practice changes hands by way of the partnership route, the buyer assumes the performance history of the seller and previous year’s underperformance will be taken into consideration if you underperform again in the future.

With potentially such devastating consequences, what steps can you take to protect yourself if you acquire an underperforming practice?

Firstly, a dental lawyer will assist you with carrying out the appropriate due diligence. They will ask for end of year statements for previous financial years, the most recent mid-year statement of activity and current pay and activity statements. They will also request copies of any breach notices and other correspondence with NHSE. The information provided in response to these enquiries will enable you, as a buyer, to assess the level of risk associated with underperformance at the practice.

If a history of underperformance is uncovered the necessary action will depend on whether you have been able to establish if this is a reoccurring or an isolated problem.

An isolated minor incident can often be dealt with by way of ensuring that a sale agreement contains provision for any clawback to be repaid either prior to completion, or from the purchase price. However, if the missed targets are larger or have happened consistently for a number of years, there is more of a cause for concern. In these instances, it may be advisable to seek a promise from the seller to protect the buyer from all losses arising from either withdrawal or reduction in value of the NHS contract. Where such protection is offered, the seller may look to limit this to ensure that the protection only kicks in where the contract is withdrawn or reduced directly as a result of prior underperformance. This means that in circumstances where the buyer continues to underperform following completion, and the contract is withdrawn due to a combination of the seller and buyer’s underperformance, the protection is worthless. The buyer should therefore ensure that they have the appropriate staffing and tools in place not to miss future performance targets.

It is also advisable to seek to work out how such protection from the seller would work in practice. A seller’s promise to protect the buyer is only as good as the amount of assets that the seller has available. If they spend the entire sale proceeds immediately following completion the buyer may find that the seller has insufficient funds to give this protection. This can be avoided if funds are kept aside in a solicitors bank account until the end of the financial year (or at such time when it is ascertained whether NHSE have agreed to allow the contract to continue on the same terms), but such a course of action may not be acceptable to a seller, who will want their money sooner rather than later.

You also need to carefully consider how to quantify any loss you suffer as a result of the NHS contract being reduced in value. The loss to a buyer is effectively ongoing as they will be unable to generate the same NHS income for years to come. However, should a buyer be recompensed permanently or is the true loss to be found in the difference between the goodwill of the business with the benefit of the full NHS contract, or the value of the business with a reduced or withdrawn NHS contract.

Any buyer purchasing a practice with an NHS contract which is at risk of withdrawal or reduction due to the seller’s underperformance should carefully consider what the business would be worth to them without the contract. If the contract is withdrawn, they could be left with owning a business which is not suitable for their personal goals and ideals. The risk of any NHS contract being withdrawn can be discussed and weighed up with a specialist dental lawyer.

 


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Restrictive covenants that could prevent you from practising dentistry following a dental practice sale
Thursday 6th October 2016

A restrictive covenant is a clause imposing a limitation. They are common in the sale and purchase of dental practices to prevent the seller setting up in competition near-by. The starting point when considering restrictive covenants in respect of dental practices is, rather unusually, that clauses which out-right prevent a seller from practising dentistry are unenforceable. A dentist has a right to earn a living and any contractual provision which prevents them from doing so won’t be taken seriously by a court.

Fantastic, I hear you mutter; but if they are unenforceable, why do we bother inserting them in the contracts?

We insert them because the situation isn’t quite as clear-cut as it may appear. A court will enforce a restriction on trade where it is reasonable in all of the circumstances, taking into account the reasons why the provisions were entered into in the first place, the distance covered and the timeframe within which the dentist is prevented from working.

Provisions in a sale agreement which restrict a seller in practising dentistry will often refer to a ‘restrictive covenant period’ and ‘restrictive covenant area’. This means that the selling dentist will be prevented from carrying out dentistry or competing with the practice that they are selling for a radius of x miles and for a period of y months. Where the provisions are included in a sale contract they are designed to protect the goodwill of the business that the buyer has purchased. Provided the distance and timeframe are reasonable they are considered to be enforceable.

What is a reasonable period and distance will depend on the practice in question and, when setting the values, you should consider the geography and patient list of the practice. In rural Cumbria, for example, it might be more reasonable to set a 10 mile restrictive radius. However, in central London, that is less likely to pass the reasonableness test. When considering reasonableness, think of how far a patient might be willing to travel in order to stick with an old dentist who they know and trust, rather than trying the new one.

Restrictions in dental practice sale contracts often prevent not only the practise of dentistry but owning or having an interest in another practice, advertising the services of a dentist, poaching staff or treating patients who have been seen by the practice in the period leading up to completion. A seller should be careful with restrictions relating to advertising, particularly in the modern world of digital media which could well reach within the restricted area.

If you are selling a practice and already know what your plans are for the future, it is important that you discuss these with your solicitor at an early stage. Your solicitor can then ensure that your future plans are not caught within the restrictions in your sale contract (provided the buyer agrees!). It is common for exclusions to be specified such as ensuring an ongoing ability for you to continue to treat family members, for you to be able to employ certain staff members (such as a spouse or loyal nurse), allowing you to work as a salaried hospital officer or continue to own an existing additional practice.

If, following the practice sale, a previous owner is intending to stay on as an associate, you must consider whether the restrictions should apply either from the date of the practice sale, or from the date that they terminate their associateship.

When negotiating restrictions in a sale contract, the parties should be aware of a possible tactic that could be used by a seller- in that they could agree to extensive provisions for a significantly lengthy period of time. As stated above, regardless of what is written into the agreement, if a court does not consider them to be reasonably necessary to protect the goodwill of the business being sold they won’t enforce them. Buyers should be particularly wary of a seller agreeing to or suggesting restrictions such as 100 miles or 10 years, in the knowledge that setting such a high bar is likely to mean that the restriction won’t work at all!.

 


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When I sell my dental practice, how will my practice’s stock be treated?
Thursday 29th September 2016

The answer to this question will depend on what you agree with your buyer. There are several options.

Included in the sale price at no additional cost:

From a buyer’s perspective, this is certainly the best option. The buyer receives the seller’s stock and they pay no more than the price that they have already agreed with the seller for the practice. With this method, there is no need for a stock take but the price that you might agree for the practice could be slightly higher than if the stock were not included in the purchase price. It might be preferable for a buyer with limited cash flow to agree a slightly higher purchase price in exchange for the stock being included, as this way the buyer can include the stock within their bank finance application.

To be paid for directly:

The sale agreement could make provision for the stock to be paid separately and for a stock take to be undertaken either immediately before completion, on completion or within a set number of days following completion. Once the stock take has been undertaken, the buyer should pay the seller for the stock separately. The benefit of choosing this option is accuracy, in that you will receive the price for the stock that is actually being transferred. However, the disadvantage of this option is that a stock take is required. From a buyer’s perspective, they need to have the extra cash available on the completion date to pay for this.

Unopened, which has three months left on the expiry date and is no older than 9 or 12 months:

It is relatively common for a sale agreement to make provision for the buyer not to have to pay for all of the stock that is present in the practice. Instead, the buyer will often only be required to pay for stock which is unused and opened, which has at least three months left on its expiry date and is no older than none or twelve months. This can limit the price that the seller receives for the stock and can slightly complicate the stock take.

To be maintained at current levels:

A sale contract may include a provision that, following exchange of contracts, stock must be maintained at the usual levels. This could mean that you will need to continue to buy and replenish stocks to leave the practice at the level where the buyer can continue to run it smoothly following completion. However, if this provision is not present in the contract, you may choose to reduce the stock levels, which will be particularly beneficial to the seller when the stock is to be included in the sale at no extra cost.

To have no substantial expenditure prior to completion:

On the other side, the sale contract may include provision that you are not to enter into any significant contract or incur any significant expenditure without the consent of the buyer between exchange and completion. This could prohibit the seller from placing large stock orders which the buyer would have to take over.

When negotiating the price, it is important to consider what your preferred option is for treatment of the stock. Communicating this with your solicitor will give them the opportunity to ensure that the sale contract reflects your intentions.


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Dental Lawyer’s Guide to 20 Key Phrases That Could be Used When Selling or Buying a Dental Practice (and what they mean!)
Wednesday 21st September 2016

For most dentists buying or selling a business isn’t an everyday activity. It is something which takes you outside of your comfort zone, which can lead to stress and worry. A simple way of reducing this is to ensure that you are on the same page as your solicitor. At Brabners we believing in communicating in a way that is easy to understand. However, you may find it useful to have a glossary of some key phrases that are often used during sales or purchases to hand.

Apportionments:
The determination of a division of money between seller and a buyer, often for ongoing business costs or payments for uncompleted courses of treatment.

Charge/Mortgage:
A loan or other obligation secured against a property or other business assets. In the event of non-payment, there is usually a right to repossession.

Completion:
The day on which the purchase or sale of a property or remortgage occurs.

CQC comfort letter/letter of intent:
A letter from CQC confirming that they will formalise a CQC registration immediately following completion of an acquisition providing certain conditions have been met.

Deposit:
Part of the purchase price which is paid on exchange of contracts to confirm commitment to the purchase. This is often 10% of the purchase price but in some circumstances can be negotiable.

Disclosure:
Facts or information given to the buyer from the seller relating to the business, often standing against the warranties. Disclosures are often collated into a ‘Disclosure Letter’ which is a document to be agreed between the buyer and seller which sets out all of the matters deemed to be disclosed.

Exchange of Contracts:
The stage at which the transaction between the seller and the buyer becomes legally binding.

Goodwill:
The established reputation of a business regarded as a quantifiable asset and calculated as part of its value when it is sold.

Indemnity:
Security or protection against loss or another financial burden.

Indemnity Insurance:
An insurance taken out usually by way of a one off payment to cover a ‘defect’ found in the title to a property, such as a lack of rights or a breach of planning permission or building regulation approval. It usually covers the owner and their lender against financial risks associated with the defect.

Licence to assign:
A formal permission sometimes required from a landlord to enable a buyer to purchase a leasehold property.

Official Copies:
A copy of the title to a property showing the information registered at the Land Registry. This document should also confirm who owns the property.

Retention:
Monies held back from completion pending either conditions being met or in reserve in anticipation of possible warranty claims.

SPA/BSA:
The business sale agreement or the sale and purchase agreement.

TUPE:
The Transfer of Undertakings (Protection of Employment) Regulations 2006.

Warranties:
Promises given by the seller or buyer, often relating to the condition of the business.

231 Notice:
A notice to the LAT adding or removing a new partner to an NHS contract where the contract is already held in partnership names or will continue to be held in partnership names.

292 Notice:
A notice to the LAT adding a new partner to an NHS contract where the contract is currently held by an individual.

295 Notice:
A response from the LAT to a 292 Notice stipulating that the new partnership has been accepted and the start date.

299 Notice:
A notice to the LAT retiring a partner from an NHS contract and leaving an individual.

The above list doesn’t cover every phrase that your solicitor might use. However, if you aren’t sure what somebody means you shouldn’t hesitate to ask. It is vital that you understand the transaction and the paperwork that you are signing and it is your solicitor’s job to explain it to you. 


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Selling an orthodontic NHS practice - all change?
Tuesday 13th September 2016

Dental practitioners may not realise that there’s an inequality between dentists and orthodontists when it comes to buying and selling their NHS practices.

Although all NHS contracts prohibit the sale of the goodwill deriving under the contract, a dentist with a General Dental Services contract (GDS) can usually transfer on their business by adding the buyer as a partner then, following the sale being finalised, retiring from the contract. A general dentist with a Personal Dental Services contract (PDS) has the ability to convert to GDS contract, which then allows them to add and remove partners therefore giving them the ability to transfer on the NHS contract.

NHS orthodontists don’t have the ability to practise under a GDS contract. If they wish to sell their business and want the PDS contract to transfer to the buyer, until now their only option has been to hold the PDS contract as a limited company and to transfer the shares. To transfer the PDS contract to a limited company technically requires the old PDS contract to be terminated and a new PDS contract to be  entered into with the company - something which might not always be possible. Practitioners should note that this can only be achieved with the consent of NHS England.

However, in January 2016, NHS England published the Policy Book for Primary Dental Services (the “Policy Book”) within which it makes it clear that a PDS contract cannot be held by a general ordinary partnership. NHS England does, however, allow for a PDS contract to be held in a limited liability partnership (an LLP). The Policy Book also states that although there are no provisions for adding and removing LLP partners in the PDS agreement:

“If the contractor is currently an individual dental practitioner and they wish to have one or more individuals join them under that agreement, then they must seek the Commissioner's consent in writing for any such variation to the contract”.

The Commissioner then needs to assess the suitability of the incoming dentist and notify the contract holder of its decision.

Once the PDS contract has been moved to joint names:

“If the contractor is currently two or more individuals and wish to change to an individual contractor, then they must seek the Commissioner's consent in writing for any such variation to the contract.”

This seems to suggest that the owner of a Personal Dental Services contract has the ability to apply for a new partner to be added to the PDS contract, and for an existing partner to be removed. This is something which before now has only been possible under the terms of a GDS contract.

However, there is need for caution. The Policy Book does not stipulate that the Commissioner must accept all suitable candidates - whether a new partnership or a retirement is accepted it entirely at the discretion of the Commissioner. This could lead to a situation whereby the new partner is accepted but the retirement is not.

It is not clear yet how the policy book will be interpreted and whether the different local area teams will react favourably towards partnership applications under orthodontic PDS agreements.

If you are an orthodontist with a PDS contract held in your individual name, the dental lawyers at Brabners LLP can talk you through your options for selling to find the best solution for you and your practice. 


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Defective work: The nightmare scenario of buying a dental practice and discovering the patients are in a poor state of dental health.
Wednesday 7th September 2016

Despite the significant research you and your dental solicitor will undertake before going ahead with the purchase of practice, unless you have been working as an associate at the practice you are buying it is difficult to really know how the practice operates at a clinical level. While a dental lawyer will assist you in asking all the right questions, and will uncover any potential regulatory or management issues, from a clinical perspective it is difficult to know what standards are being upheld without seeing the patients themselves.

However, there are ways you can protect yourself. Firstly, consider what type of practice you are buying. Does the practice treat NHS, private or capitation scheme patients?

NHS Practices

Where defective work has been carried out by a previous practice owner on the NHS, then remedial work will be carried out under the NHS guarantee scheme and, for the most part, any repair work would be eligible for you to claim UDAs. You should therefore not be out of pocket if you are required to carry out remedial work.

Denplan or other capitation scheme practices

Denplan Care patients (or patients on similar schemes) are the biggest problem for dentists buying a practice who discover defective treatment. This scheme works on the basis that the dentist receives a set monthly amount in return for maintaining patients at a certain standard of dental health. Problems can arise where patients have either been incorrectly banded under the scheme, or the standard of dental health promised has not been achieved or maintained by the outgoing dentist. It is a particular concern you will not receive any additional recompense beyond the standard monthly payment for the time you spend remedying the issues.

Denplan recommends that, when Denplan Care patients are transferred, a sum is kept aside equating to 10% of annual Denplan turnover.

The idea behind this is that the retained sum can be claimed by a buyer if any additional work is required. Your solicitor should include provisions within the sale contract which provide for such a retained sum being set aside. They should also ensure that the contract clearly sets out the circumstances in which a claim on those funds can be made and the procedure for making such a claim.

Private patients

For purely private patients, you are likely to need to repair any defective work carried out by your predecessor. A sale agreement should include a clause that the seller pays the buyer to carry out any remedial work to private patients.

Even where funds are set aside for potential claims, it is important to remember that claims are not usually limited to the amount set aside, and may be subject to other limitations. Sale agreements often include minimum values before a claim can be made, in order to avoid disputes over small sums. Contracts often also have a maximum limit of either the full purchase price of the practice or the price paid for goodwill and equipment. Sale contracts will also set out the timescales for making claims under any defective work warranty. It is important that you are aware of these, as a claim will not be allowed if it is brought too late. 

If claims are made against a seller for defective work, the sale agreement may set out a process for either:

i) the seller to carry out remedial treatment themselves;
ii) the seller to examine the patients to ascertain whether the work is really required; or
iii) the seller to have an independent third party examine the patients to verify the claim.

The seller and the buyer, usually via their solicitors, would negotiate on these points and agree any suitable options in the circumstances.  Although your dental solicitor will negotiate the provisions relating to payments to remedy defective work, there are still other significant disadvantages to buying a practice where it is common, which are more difficult to safeguard against.

If patients who have been treated poorly in the past, the reputation of the business you are buying may have been damaged. It may also mean that during the first year of practice ownership you spend all of your time remedying problems left by your predecessor, rather than concentrating on new business and growth. You should consider whether you will have enough staff should extensive remedial work become necessary. Where the practice is staffed by associates, are they the right people to help you fix the problems of the past, given that they may have been aware of, or worse, part of the problem in a failure to maintain clinical standards?

From a seller’s perspective, the issue is also problematic. Often a seller will feel that a buyer is looking to make spurious claims just to increase their cash flow. Many dentists will appreciate that a patient returning with a complaint is, more often than not, encountering difficulties due to a failure to follow the advice given, rather than a defect in their initial treatment. In such circumstances, it hardly seems fair to make the seller pay the buyer for such remedial works. There can also be stylistic approaches and differing (but equally valid) clinical opinion on the treatment of a patient.

To avoid problems further down the line, it is important that you consider the ‘what if’ scenarios with your solicitor. The correct advice from a specialist dental solicitor, and some solid negotiation with the seller, can help protect you from the nightmare. 


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Restraints on bringing warranty claims after buying a dental practice
Tuesday 30th August 2016

When acquiring a dental practice, a specialist dental lawyer will negotiate promises, known as warranties, given by the seller of the practice to the buyer in respect of various aspects of the business. The warranties give a buyer peace of mind that the business has been properly run and is worth the price being paid.

If, following the acquisition, the buyer discovers that the warranties have been breached, they will be able to pursue a claim against the seller. However, the sale agreement is also likely to include provisions which restrict the ability of the buyer to make a claim. It is important that the buyer is aware of these restrictions to ensure they have an adequate remedy should a warranty be breached.

A sale contract will often set out a time limit for making the warranty claim. These can vary from three months to three years, but in dental acquisitions a twelve to eighteen month time period is common. The time limit is often set on the basis of how long it would take for the buyer to see the practice’s full cycle of patients. Tax warranties often have longer timeframes on the basis that it may take the buyer or its advisors longer to establish that a warranty has been breached. Given the time limits, it is important for a buyer to notify the seller or their solicitor as soon as they become aware of a potential claim.

A sale agreement will often include minimum and maximum values for a claim. A minimum value is often set to avoid the seller and the buyer getting into disputes over relatively minor figures; for example, the seller doesn’t want to be pursued by the buyer for a £20 claim. There will often be a minimum threshold of a set sum for both single claims and an accumulative threshold for many small claims together. Maximum claim values are also often set in the agreement. The maximum figure is often taken as either the price paid for the practice, or the price paid for the elements of the practice excluding the property (because even if there is a breach of a warranty, the property will still be saleable).

There are also likely to be a series of other restrictions within the agreement which stipulate when a warranty claim can and cannot be bought. These could for example, include provisions preventing a buyer from claiming where the funds can or have been recovered from a third party or where the buyer is already aware of the breach of warranty prior to deciding to buy the practice. It is important for a buyer to both understand the extent and scope of the warranties that are being given in relation to the business and the restrictions which could prevent them from making a claim.

The parties should also be aware that the restrictions on warranty claims may not apply to other claims available under a contract. For instance, warranty restrictions may not prevent indemnity claims. An indemnity is a promise within the contract for the seller to protect the buyer from any loss arising from a particular circumstance. An indemnity therefore may fall outside of the limitations on warranties.

When purchasing a dental practice it is important to seek the advice of a specialist dental lawyer who can ensure that the terms of the contract are fair and reasonable. They will also ensure that a buyer understands both the warranties being offered by a seller and any restrictions on pursuing a claim under them. 


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Apportionments of income when buying a dental practice
Tuesday 16th August 2016

When buying a dental practice, it seems relatively simple to say that, when the purchase is finalised, the fees for treatments should stop going to the seller, and should instead be paid to the buyer.

In principle, this makes sense, but in reality a specialist dental lawyer can help in setting out how this should work in practice.

Firstly, the time at which the purchase will actually be finalised can be difficult to predict. Although we can estimate that transactions are likely to be finalised before 3.30 pm, it is not unheard of for matters to complete well into the evening or early in the morning. Common practice among specialist lawyers has been to set the time for calculating apportionments to be the close of business on the day of completion. This means that the seller will continue to run the practice as normal on the day that the sale is finalised, they close up at the end of the day and the buyer opens up on the new day. This makes for a neat arrangement in terms of paying staff and apportioning income and outgoings.

If the practice in question operates an NHS contract with UDAs to be performed, then a dental solicitor will be able to assist with apportionments of the NHS income. Many practices don’t see an equal number of patients from month to month and, on a pro-rata basis, the UDA target may be either overperformed or underperformed at the completion date. A sale agreement between a seller and a buyer should set out how the fees are to be divided on completion covering both an overperformance and an underperformance scenario. What the agreement will say is a matter of negotiation, however, a common arrangement is for the seller to make a deduction from the purchase price in relation to UDAs that should have been performed on a pro-rata basis but have not yet been achieved. This gives the buyer the funds to effectively catch up on the underperformed units. Where the practice has over performed, the most common arrangement is (unfortunately for the seller) not for the buyer to pay the seller extra for the additional work they have carried out. Whilst this may seem slightly unfair as the buyer will then effectively receive payment from the NHS for the work that the seller has carried out, the reality is that when a buyer acquires a practice they are paying for the ability to carry out the treatment to patients. If the seller has carried out the treatment so the buyer cannot do so then this would diminish the value in the business. The trick for a seller is to be as close as possible to, but without exceeding, the pro-rata UDA target at the projected completion date.

Where an NHS contract exists, it is possible that the buyer receives a payment from the seller for underperformed UDAs for previous financial years that have not been subject to clawback. Investigations by the buyer’s solicitors will reveal where this is relevant and appropriate provisions can be included in the contract documentation.

A complicating factor where the practice carries out NHS dentistry can be the collected patient charges revenues. Sums which are collected by the seller can be deducted from the NHS contract following completion, which in real terms means that the buyer’s NHS payments following completion are reduced due to funds being received by the seller. A fair solution to this issue would be that the seller repays to the buyer any deductions for patient charges revenues made following completion where the sums relate to funds received by the seller.

Where the practice in question operates with either Denplan Care or another similar capitation scheme the amounts received can usually be divided between seller and buyer on a simple pro-rata basis. However, where the scheme differs from a standard monthly amount it may be necessary for the seller and buyer’s solicitors to examine the rules of the scheme and establish a fair and reasonable way forward.

The procedures for dividing fees for purely private patients are potentially more complicated, particularly where there are uncompleted courses of treatment which may have been paid for in advance. A sale agreement can be prepared in a way which covers the particular types of treatment offered by the practice and providing for set percentage apportionment of fees dependant on the stage the treatment has reached. Again, a specialist dental lawyer will be able to guide you as to what is reasonable and assist you in negotiating this.

Many dentists do attempt to ensure that all courses of treatment are complete and that there are no ongoing matters when the business changes hands. However, completion dates can be changeable and occasionally difficult to predict. It is therefore not always possible to ensure that all ongoing courses of treatment are finished.

As well as apportioning the income between seller and buyer, it is also important that a contract covers the split in the outgoings of the practice. This needs to cover lab costs, payroll, holiday allowances and other day to day costs of the practice such as utility bills. Although a sale contract can cover how the calculations are due to be made, it is often recommended that either on the day of completion or in the days immediately surrounding the completion date, that the seller and buyer sit down together to work out the apportioned figures. 


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Disclosing against warranties - advice for sellers of dental practices
Monday 25th July 2016

Selling a dental practice can be a tricky process. Like everything else, the buyer wants to get the maximum value for their money and the seller wants to get the most money in exchange for the minimum obligation. Negotiations as to the exact extent of a seller’s obligations to a buyer can be extensive.

In most cases, a buyer will look for ‘warranties’ from a seller. These are promises that are made by the seller relating to the business. For example the seller may promise (i.e. warrant) to the buyer that the practice is not subject to any pending claims  or that any Denplan patients have been correctly banded.

When selling a dental practice, it is wise to limit the warranties that you, as a seller, offer to a buyer, as any breaches of those promises could lead to a claim against you following the sale. However, it is all a matter of negotiation. From a buyer’s perspective they want some certainty that the practice is worth the money that they are handing over to you, which is why they will try to obtain extensive warranties from the seller.

From a seller’s perspective, the trick is to negotiate the warranties to a level that you are comfortable with. Give only those promises that you are able to deliver. Where there are problems with your practice honesty really is the best policy.

Read through the warranties that your solicitor is suggesting very carefully. If there is a fact or piece of information that you are aware of that goes against any of the warranties then the best course of action would be to formally ‘disclose’ it. A disclosure is a way of handing the information to the buyer or the buyer’s solicitors. Following disclosure of information, you can be protected against breaches of the warranty arising from such fact.  

For example, you may be asked to warrant that there have been no negotiations for pay increases with any staff members at the practice. However, it could be that two weeks earlier your practice manager came to you and said that she needed a substantial rise or she would consider leaving. The practice manager’s desire for a pay increase isn’t your fault, but the fact that the conversation has taken place could be construed to be a breach of the promise that you are making to the buyer. In instances such as this, it is imperative that you tell your solicitor. Your solicitor can then either negotiate the warranty to avoid any breach or alternatively formally disclose to the buyer’s solicitor the fact that the conversation has taken place. Either way, you would be protected from any claim for breach of warranty from a buyer.

A specialist dental lawyer will be able to protect your interests going forward and understand the consequences of warranties that a buyer will expect. With the right advice and a bit of honesty, you can ensure that any ongoing liabilities to your buyer are kept to a minimum.  


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