It is important to understand the issues relating to the purchase of a dental practice because a dental practice is a unique business with its own complexity, writes Property and Commercial Partner Barry van Heerden.
What follows is a short summary of the more important issues any dentist must consider before buying a dental practice.
ZONING OF THE PREMISES
It is important to conduct Council searches to ensure it is lawful for a dental practice to be conducted from the premises.
It is also prudent to confirm whether there are any limitations on the number of practitioners allowed at any given time at the premises. We were recently involved in a NSW practice which was a busy 3 chair practice only for the buyer to find out it was only approved for 1 practitioner.
RADIATION USE LICENCE
Any person who uses dental radiation equipment (e.g. x-ray equipment) for dental purposes must hold a licence under the Radiation Safety Act 1999 (Qld).
If a dentist is registered with the Australian Health Practitioner Regulation Agency, that dentist is considered to be a “prescribed licensee” and may not be required to apply for a licence to use intra-oral dental radiation equipment.
LEASE OF PREMISES
Whilst there is a number of things to consider in relation to the lease of the premises from where the dental practice is being conducted the following a crucial:
- The last thing you want is for a big corporate to open a new dental practice next to your practice and offer huge incentives to patients.
If necessary, you should negotiate a clause which allows exclusivity for you to run a dental practice.
- The rent payable and any increase in rent and associated outgoings must be considered. The business must be able to afford any rent, outgoings and increases in the future.
- Terms of the lease. If you apply for finance by a dental practice your lender will most probably required a long term lease before approving finance if necessary additional options must be negotiated.
Due diligence may cover a vast variety of issues to check. Some of these issues are the following:-
Income of the business
You must obtain the advice from an accountant to verify the income of the business to ensure the income is not inflated, specifically if the seller owns other dental practices as well.
Potential issues with service providers
The seller must provide a warranty to the effect there are no issues with preferred service providers.
Where a buyer continues with the employees of a business, the buyer becomes the employer and liable for all entitlements due and payable to the employees. Appropriate adjustments must be made to the entitlements on settlement. It is also recommended there is a warranty provided by the seller that there are no outstanding disputes with any employees.
As previously mentioned, it is important to obtain advice from an accountant. Most accountants do not have significant knowledge of dental practices and we always advise clients to contact an accountant with informed knowledge of dental practices.
Please see our previous blog on the use of lawyers in the purchase of a dental practice.
ARRANGEMENTS AFTER SETTLEMENT
The continuing employment for a period of time after settlement by the seller is advisable and will benefit the buyer. The buyer may use this “overlap time” to get to know the patients, operation of the business and the staff.
It is recommended the parties agree on an amount to be kept in a retention fund (trust account of a lawyer) for a period of time after settlement to compensate the buyer for any remedial work that must be carried out on patients.
In buying a dental practice you need to have a team of trusted advisors on your side and it is strongly advisable you have a dental accountant, dental solicitor, dental lender and dental practice broker to assist you in the process of due diligence, legal documentation and settlement of a dental practice.