Buying & Selling a Dental Practice

Are you looking for experienced dental practice lawyers? Louis Laskovski is highly experienced in buying and selling of dental practices. He has acted as legal counsel on numerous dental practice transactions for both buyers and sellers. Contact him today for a free initial consultation at 905-884-9242 extension 242 or laskovski@sbmblaw.com if you are looking to buy or sell a dental practice.

The role of the agreement and strategies in negotiating the deal

When dentists are in need of the services of dental practice lawyers – they call Louis Laskovski. He is often retained to represent a buyer or seller in the purchase or sale of a dental practice. It is not unusual for an agreement to have been negotiated, drafted and signed by the parties without having a lawyer involved in the process. Often a broker will assist the parties with the agreement, which is made conditional on a lawyer’s review and approval. Not surprisingly, the negotiations, prior to the involvement of dental practice lawyers, tend to focus on deal structure and purchase price. However, the purchase and sale of a dental practice is complex and involves several other issues that are less understood or overlooked by the parties but are equally as important, including economic, tax, and risk allocation in respect of liabilities of the practice that properly need to be dealt with in an agreement. Since the agreement creates binding and enforceable obligations on the parties, it is important that a buyer and seller recognize their obligations at the outset and, have these appropriately addressed in the agreement. The purpose of this article is to draw your attention to some of the less understood provisions of an agreement and to highlight the purpose they serve.

Representations and Warranties

One of the most important aspects of the purchase agreement are the statements made by the seller in respect of the dental practice. These statements are known as representations and warranties and they often cover a wide range of topics from legal matters regarding the ownership of the practice assets, to much more operationally specific matters regarding the financial condition of the dental practice. A buyer will want to seek assurances from the seller to ensure that there are no surprises after closing. Conversely, a seller will want to limit and narrow the scope of such statements by qualifying them, so as not to create any unnecessary liabilities. The negotiation of these statements is an extremely important tool in the buying process that allows a buyer, together with the buyer’s due diligence, to learn more about the practice before buying and to protect the buyer from any untrue or incorrect statements. If the seller is not prepared to make certain statements or alternatively, chooses to qualify those statements, this can be used as a means to negotiate the price.

Pre-Closing Covenants

These are promises made by a seller to do something, or not to do something, during the period between the signing of the agreement and the closing. An agreement should contain a sufficient number of promises that ensure that no changes are made to the practice until closing. Promises that restrict a seller’s activities, also referred to as negative covenants, are designed to prevent a seller from making changes to the practice without first obtaining a buyer’s consent. An example of a negative covenant is not to increase the compensation paid to employees and associates of the practice. Promises that obligate a seller to take certain actions prior to closing are also known as positive covenants. An example of a positive covenant is to operate the practice in the normal and usual course of business, consistent with past practice.

Conditions

The agreement will often contain one or more conditions, which must be satisfied in order to legally require the other party to close. Conditions are usually for the buyer’s benefit and should be drafted in clear and concise language. For example, care should be taken to ensure that a condition will not be deemed satisfied, fulfilled or otherwise waived unless the buyer gives written notice. Watch out for conditions that are deemed to have been satisfied and/or waived unless written notice to the contrary is given. Conditions should also stipulate that they are to be satisfied at the sole discretion of the buyer and not by some other standard. For example, with respect to financing, it is not sufficient to say that the agreement is conditional on the buyer obtaining financing. This can and sometimes does lead to the seller arranging for the financing on terms that a buyer may not be prepared to accept but is forced to do so because of a poorly worded condition. This can be rectified by wording such as the buyer obtaining finance at this sole discretion. Careful attention is required when drafting and wording conditions.

Restrictive Covenants

Placing restrictions on a seller’s ability to compete and in soliciting patients and employees of the practice is an important part of the agreement. A buyer will need to ensure that restrictions placed on a seller are adequate to protect the interests of a buyer. To determine what is adequate is dependent on many factors, including, the seller’s age, continued desire to work and other practice locations that may be owned by the seller. In the case where a seller owns and operates another dental practice or intends to continue working after the sale, geographic restrictions alone may not be sufficient to protect a buyer’s legitimate interests in the practice. Consideration should be given to including not only non-solicitation covenants but also a clause entitling a buyer to a pre-determined amount of money as damages for each patient of the practice that, after closing, becomes a patient of the selling dentist. Such clauses will decrease patient attrition that results from a seller’s potential competition.

Indemnification

Often overlooked, these provisions are designed to protect a buyer from any matter for which indemnification has been obtained. Indemnification provisions typically address breaches of any of the seller’s representations and warranties and any pre-closing covenants. A buyer should also ensure that they are indemnified for any issues arising from dental work performed by the Seller prior to closing but which may not arise until after closing. Where shares of a dentistry professional corporation are being purchased, a buyer will also need to make certain that a seller remains liable for and agrees to indemnify for any taxes payable.

This article is not intended to be exhaustive in nature and does not replace the need to obtain professional legal advice. It is intended to provide the reader with some general knowledge and awareness of the various issues which can and should be properly addressed in the agreement of purchase and sale from the outset. Given the complexities, you should consult with your professional legal advisors early in the process.

Contact our dental practice lawyer Louis Laskovski today for a free initial consultation at 905-884-9242 extension 242 if you are looking to buy or sell a dental practice.