Buying or selling a dental practice is a significant decision that involves more than just negotiating a deal structure and purchase price. While these aspects are crucial, there are several other elements that are often overlooked but play a vital role in shaping the success of the transaction. This article delves into key components of a purchase agreement and negotiation strategies, shedding light on complex aspects that are frequently misunderstood and require a lawyer’s review and approval.
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Representation and Warranties:
At the core of any purchase agreement lie representations and warranties which are defined as statements made by the seller regarding the dental practice. Covering legal ownership matters and operational details, these statements offer assurances to the buyer. Negotiating them becomes a powerful tool for buyers, providing insights into the practice and protection against surprises. Sellers aim to limit these statements to mitigate liabilities, influencing the final purchase price.
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Pre-Closing Covenants: Ensuring Stability in Transition
Pre-closing covenants are promises by the seller to take specific actions or refrain from changes between agreement signing and closing. Negative covenants prevent unilateral changes, while positive covenants maintain the status quo. For example, a negative covenant may restrict employee compensation increases, ensuring stability during the transition. Positive covenants could include operating the practice as usual.
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Conditions: Safeguarding the Buyer’s Interests
The agreement often includes conditions that must be met for the parties to legally compel the other party to close the deal. Drafted clearly, these conditions, primarily for the buyer’s benefit, help prevent unintended consequences. Conditions related to financing, for instance, should explicitly state that its satisfaction is subject to the buyer’s sole discretion, otherwise, the buyer may be forced to obtain financing with unfavorable terms in order to close the deal or face potential claims for damages from the seller.
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Restrictive Covenant: Balancing Buyer’s Protection and Seller’s Freedom
Placing restrictions on a seller’s ability to compete or solicit is crucial. Balancing buyer protection and seller freedom is essential. Geographical restrictions may not suffice, and non-solicitation covenants should be considered. Adding a clause for damages due to patient attrition post-sale further safeguards buyer interests.
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Indemnification: Safeguarding Against the Unforeseen
Indemnification provisions protect buyers from breaches, covering unforeseen circumstances. Buyers should ensure coverage for post-closing issues, such as dental work performed by the seller. In share purchases, the buyer should also consider indemnification for pre-closing taxes as a safety net against assessments or reassessments by the Canada Revenue Agency.
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Crafting a Solid Foundation for a Successful Transaction
Whether buying or selling a dental practice, the purchase agreement is the foundation for a successful transaction. Beyond price and deal structure, lawyers are attentive to representations, covenants, conditions, and indemnification clauses to ensure a smoother transition.
Blackburn Lawyers is made up of a team of dedicated lawyers who are pleased to provide support and guidance to ensure a secure future for both buyer and seller alike. If you have questions about the purchase and sale of a dental practice, contact our lawyers today.
Disclaimer: This blog sets out a variety of information relating to the law that is to be used for educational purposes and is not legal advice for your particular situation. The author of this blog does not intend for this blog to be a source of legal advice.
Written by: Adriana Totera
* Please note that the information in this article is not intended as legal advice, but rather as a general overview on the subject. If you are seeking legal advice, please consult with a lawyer.
