Aim for a pain free goodbye: Meridian Lawyers acts for vets in the sale and purchase of veterinary practices. Here is a brief overview of the legal process, together with tips on how to make the process as pain free as possible.
Step 1: Gather information about your practice
The vet selling the business (vendor) will be expected to produce the contract of sale for the purchaser to consider. The contract is a technical legal document, and it will be necessary for a vendor to instruct a lawyer to prepare this on his or her behalf.
The vendor’s solicitor will need important information and documents concerning the practice. For example, the vendor’s solicitor will need to see a copy of the premises lease. The vendor may need to produce a copy of the development approval for the premises, and other documents such as a list of equipment being sold, a copy of the certificate of registration of the business name (if any), details of the vendor’s employees (as a minimum their names, start dates, positions, employment status and current entitlements), a copy of the certificate of registration of any trade mark, evidence of ownership of any domain name, and a copy of any current contracts (such as security contracts, software agreements, fit out agreements etc).
Vendors save time, and also potentially save legal costs when they have information about the practice and copies of key documents ready to instruct their solicitor in one go.
Step 2: Prepare the contract
Whilst preparing the contract, the vendor’s solicitor should advise regarding special conditions the vendor may wish to include. For example, your solicitor may include terms that:
- exclude warranties about the condition of equipment;
- exclude warranties about the takings of the business and require the purchaser to rely on their own enquiries;
- require the purchaser to provide a personal guarantor where the purchasing entity is a company;
- requires the purchaser to pay interest on the purchase price if completion is delayed; and
- indemnifies the vendor against breach of any continuing agreements (including the lease) after completion.
Sometimes there are conditions precedent in the contract which require the offer of a loan to the purchaser, or variations to the lease, or the entering into of an employment or contractor’s agreement between the vendor and the purchaser.
The vendor will also need to stipulate how employees are to be dealt with on the transfer. Is the purchaser going to be free to offer employment at its discretion or does the vendor wish to require the purchaser to offer employment to all current employees on their current terms and conditions? The contract will need to state what employee entitlements are to be paid out by the vendor on completion, and what entitlements will be the subject of an adjustment to the purchase price where the liability is being taken over by the purchaser. If your solicitor does not advise you about this, be sure to ask before you sign the contract or make any payments.
The contract will generally contain a set of promises or warranties by the vendor. You should familiarise yourself with those promises before exchanging contracts to ensure you can comply with them, and if you cannot comply with any promise you should seek legal advice about whether to disclose this. Once prepared, the vendor’s solicitor will send the draft contract to the purchaser’s solicitor.
Step 3 – Exchange contracts
When each party’s solicitor is happy with the terms and conditions, the contract will be legally exchanged and the purchaser will pay the deposit, usually to the vendor’s agent or solicitor to be held on a trust account pending completion. From this point on, there is a legally binding agreement to sell and buy, subject to the conditions precedent being satisfied.
Dependent upon the circumstances of the individual practice, there can be considerable work to be done by the solicitors after exchange and in the run up to completion which may include:
- obtaining consent to assignment of the lease and any variations from the lessor;
- securing a new lease for the purchaser if the vendor’s lease has expired; and
- negotiating and agreeing the terms of any employment or contractor’s agreement for the vendor vet.
Generally, the contract of sale will oblige the vendor to maintain the goodwill of the practice and carry on business in a proper and business like way after exchange and up to completion, and ensure that the practice is run as a going concern. Vendors will often also be under obligations to maintain the equipment and comply with the lease. Vendors should seek advice from their solicitor before granting or varying any employee entitlements after contracts are exchanged. The contract of sale may contain prohibitions on such changes.
Step 4 – Completion
The parties’ solicitors will liaise with each other to agree the time and date for completion, and make sure that all documents required to be handed over are ready in time. The vendor must make any employee entitlement payments required under the contract, and where the vendor has bank borrowings secured over the business being sold, the vendor’s solicitor will arrange for the vendor’s bank to attend settlement and hand over releases of security interests in return for settlement cheques repaying the borrowing.
- Gather all relevant information and documents together and send them to your solicitor in one go.
- Be aware of the promises contained in the contract of sale and the restrictions which are placed on vendors once contracts are exchanged.
- Be prepared to commit time to fulfilling the conditions precedent and preparing for completion – there is much to do.
- Ensure your financier has sufficient warning of the impending sale and discharge of loans and security interests.
For advice or assistance with the sale or purchase of a vet practice please contact Principal Georgina Odell.
Disclaimer: This information is current as of December 2016. This article does not constitute legal advice and does not give rise to any solicitor/client relationship between Meridian Lawyers and the reader. Professional legal advice should be sought before acting or relying upon the content of this article.