Six Key Considerations When Buying or Selling a Care Home

Buying and selling a care home is a complex process and there are many factors to consider to ensure the transaction is successful.

From a legal perspective, it is key to make sure you consider all the implications of the purchase or sale of the care home and that both parties are in agreement before you proceed.

You may want to put in place Heads of Terms, a document outlining the main points of the sale or purchase of the care home, precisely what assets are included, if all staff are to transfer, timescale, price etc.

Top Six Considerations

1.         Asset Purchase or Share Purchase

The detailed terms of the Sale and Purchase Agreement are vital and both parties must agree on the structure of the transaction at the outset.  The Seller should be clear at the outset whether this is to be a Share Sale or an Asset Sale.  In some cases the Property will be held by a different entity from the Business.  Different tax considerations apply to Asset Sales and Share Sales and it is important that Accountant’s advice is obtained before the Seller brings the care home to market.  We always look for a good line of communication with your Accountants on this and other aspects.

2.         Due Diligence

The process of due diligence can be a long one due to the number of contracts in place already with the care home, such as those with the local authorities, suppliers and maintenance firms.

For an Asset Sale the contracts may need to be individually assigned or “novated” to the Buyer (i.e. benefit passed over with indemnities from the Buyer to ensure that the Seller is protected against any comeback later from suppliers) and for a Share Purchase all changes of control need to be checked.  Every document relating to supplies, local authorities, resident’s agreements, assessment checks, planning permissions, registration with CQC etc must be as well as financial accounts and records.  Your solicitor will agree the division of labour in this respect with your Accountants.  Generally the Buyer’s solicitor will produce a due diligence questionnaire to be answered by the Seller.

3.         Sale Agreement

This is generally prepared by the Seller’s solicitors on a Share Sale and by the Buyer’s solicitors on an Asset Sale.  The terms of the two contracts are radically different depending on which applies.  In either case key issues will be price (on a Share Sale this may depend upon the asset value in completion accounts), warranties to be given by the Seller i.e. statements which give comfort to the Buyer on which the Seller can be liable if untrue, covenants in restraint preventing competition by the Seller and indemnities by the Buyer to the Seller in respect of any future liabilities for the Business.

4.         CQC Registration

The CQC monitors care home owners and assesses the standard of care provided at the home.  If the Buyer is not registered with CQC it can take up to 3 months to make an application and if the Company being bought already has CQC registration then the CQC will need to be informed.  Very often the Purchase Contract will be conditional upon registration.  Your solicitor will also make enquiries about any outstanding recommendations or requirements of CQC and of the position relating to any complaints.

5.         Staff

If possible it is a good idea to meet key staff before the purchase is complete especially with a CQC registered manager or responsible person.  This will help ensure a smooth transaction.  However, Sellers are sometimes not willing to permit Buyers to meet the Key Staff until at least exchange of contracts has taken place.  Delicate negotiation will be required here.  Certainly your solicitors should review contracts of employment and make enquiries about any disciplinary or grievance procedures undertaken.

6.         Helping with your care home Sale or Purchase

Our specialist solicitors have experience and understanding of the residential care sector to help with the sale or purchase of all care businesses.

Your solicitor will ensure your sale or purchase proceeds efficiently, and will support you at every stage of the process, from agreeing terms of completion.  We can help with due diligence including contracts, property and CQC registration; the transaction structure and the transfer of employees. Early preparation by the Seller is key – good preparation made before the Business comes to market may pay dividends and smooth the transaction e.g. it would be useful for you to know the type of questions in the due diligence questionnaire which the Buyer’s solicitors are likely to raise.  On a purchase it is vital that your solicitors discuss with you the extent of the due diligence to be undertaken and risks.

Following an initial, no-obligation discussion to help us understand what is the right option for you, if you decide to go ahead, we will then provide the legal insight and support needed throughout this complex process, enabling you to successfully sell or buy the care home.

To speak to one of our specialist solicitors about your care home, please contact us at our Chorlton Office on 0161 860 7123 or email chorlton@hlfberry.com or at our Failsworth Office on 0161 681 4005 or email failsworth@hlfberry.com.