In the buying or selling a dental practice, there are many critical legal issues parties should consider. In this Expert Blog Part 1 of 3, Attwood Marshall Lawyers Partner Barry Van Heerden explains where to start when you decide to sell or buy.
Practice Sale Search are agents dealing exclusively with the sale of dental practices. Recently the following article was published by the owner Simon Palmer:
There’s nothing more expensive than a cheap lawyer!
The stakes are high in practice sale transactions. Financially, a practice usually sells for amounts in the hundreds of thousands or millions of dollars. There are also important non-financial qualitative aspects of the deal, like transferring staff, patient relationships and a reputation that has been built over decades, and post-sale work commitments for the vendor that can last from 6 months to 5 years. The transaction itself is usually documented with three or four legal contracts (1. a business sale agreement, 2. a premises lease contract or premises sale contract, 3. a work contract for the vendor post sale, and 4. a partnership/associateship agreement if there are equity partners/associates). With all of this at stake, you would think that a buyer or vendor would want to make sure that they get appropriate legal representation, to ensure that they get what has been promised to them and to protect themselves from future risk.
In the dental industry, we see regularly:
- Dentists decide to save themselves the bill and handle the matter themselves.
- Professionals like dentists are often surrounded by professionals, and a lawyer is never more than one degree of separation away. Regularly, a dentist’s brother-in-law, cousin, neighbour, friend or acquaintance at the golf course is a lawyer who says that they will do the job and give them a discount on the work.
- They ask a lawyer who they previously used for immigration, divorce, litigation, real estate conveyancing, estate planning, employment contracts. When asked, the lawyer says that they can handle it.
- They get a referral from a friend or their accountant, who has had a good experience using a lawyer for an unrelated matter (immigration, divorce, litigation, real estate conveyancing, estate planning, employment contracts).
These are all approaches that will probably get the job done for a seller or a buyer… but:
Will it get the job done well?
- A friend or family member lawyer will sometimes over-service a client who they feel indebted to, trying to win points by pushing for creative, unprecedented conditions.
- A friend or family member lawyer will sometimes under-service a client, because they aren’t getting paid properly and begrudge having to do the work cheaply (or for free) out of familial obligation.
- A lawyer unfamiliar with commercial law will not have the same eye for commercial risk and experience with clauses that would help their client.
- A lawyer unfamiliar with dental practice sales is prone to producing inappropriate contracts and often struggles with due diligence compliance, thereby missing industry norms and risks facing their client, and the legal protection that their clients need.
- Dental practices are idiosyncratic. Acting in a dental practice transaction is not necessarily the same as acting in the sale of a beauty salon, café or realestate!
Is this the way we select professionals for any other high-stakes transaction?
If a dentist needed surgery on their hand:
- Would they try to do it themselves?
- If a GP doctor cousin offered to do it on the cheap, would you take them up on it?
- Would you go to a foot surgeon for an ear, nose or throat problem?
Most people would recognise that the best way to select assistance for a complex task is to ask:
- Someone qualified to do that task
- Someone who has done that complex task 100+ times before (because they will likely do a better job than someone who has trained for a different task and is doing it for the first time).
What this means, as far as a dental practice sale is concerned, is finding someone:
- With a legal qualification.
- Who handles commercial transactions for a living (rather than immigration or conveyancing).
- Has experience in the dental industry, can communicate with dental knowledge and understands the operational process, knows the industry risks and norms, where problems arise and where their client needs to be protected from industry-specific liabilities.
- Who can give you peace of mind.
The primary aim of this is to ensure the transactions of the clients are able to be completed as efficiently as possible – this becomes difficult if the other side is combative, unfamiliar with the operational side of dental practices and is asking for uncommercial terms which can derail the deal. To play a game of tennis it relies on people on both sides of the net knowing what they are doing.