Legal Matters When Selling a Dental Practice


David Rosenthal


June 20, 2016

June 20, 2016

In May the Ontario Dental Association held a day long seminar at the Annual Spring Meeting in Toronto regarding transitioning out of a dental practice. I was one of the speakers and discussed legal matters when selling a dental practice. My handout included a checklist of legal matters to consider when selling a dental practice. Such checklist, together with the handouts by the other speakers, provide excellent learning resources for dentists.

Outlined below is a checklist of some of the legal matters to consider when selling a dental practice.

1. Retain an industry recognized professional appraiser to conduct a detailed appraisal and valuation of your practice

2. Determine what you are selling – shares or assets

3. Review the appraisal carefully with your accountant to determine the allocation of purchase price and to assist in finalizing the purchase price

4. Understand the tax effects of the allocation of purchase price to different asset classes if selling assets

5. If you have an existing dentistry professional corporation, ensure the minute book and corporate filings are current

6. If you do not have an existing dentistry professional corporation, consider forming such a corporation before closing and sell shares to take advantage of the capital gains exemption

7. Review your cost share agreement or partnership agreement, if applicable, and determine if you are required to first offer to sell your practice to your cost sharers or partners

8. Understand your rights and obligations (and purchaser rights and obligations) in the definitive legal purchase and sale agreement including, in particular, any post closing vendor liabilities

9. Review your existing arrangements with the current associates working at your practice, including:a. Do proper written agreements existb. Are associates bound by non-solicitation and non-competition covenantsc. Can the associate agreements be transferred to the purchaser?

10. Carefully review your premises lease to determine:a. The term of lease is at least 10 years, including renewal options (the purchaser and purchaser bank will typically require 10 years)b. For the options to renew the lease, is rent to be fair market rent as mutually agreed by the landlord and tenant or failing agreement by arbitrationc. What ‘danger’ clauses exist in the lease including:i. relocation – landlord right to relocate the practice within the building or plazaii. demolition – landlord right to terminate the lease early if building to be demolished or substantially renovatediii. termination – landlord right to terminate lease when vendor sells the practice and requests landlord consent to transfer lease to purchaseriv. vendor liability after sale of practice – typically leases do not release the vendor from obligations under the lease even on a practice saled. When negotiating the next renewal term with your landlord, as part of that renewal process include making changes to the premises that will enhance the value of the practice and limit vendor liability after sale

11. Review your equipment leases to determine early buyout rights and penalties (purchasers typically expect to acquire all assets free and clear of any lease obligations)

12. Carefully review all staff arrangements you have,including:a. Do proper written agreement exist for all staff, whether dental hygienists, chairside assistants and others working at the practiceb. Is notice to terminate an employee limited to Employment Standards Act (Ontario) minimums or does common law extended notice periods apply

13. Introduce proper written agreements with all staff at least two years before a sale if you have only verbal agreements with your staff

14. Determine if purchaser will retain all staff after closing and on what terms:a. Understand vendor legal obligations regarding staff after closingb. Typically if a purchaser terminates any staff after closing, the vendor is required to pay half of the staff termination costs for three months after the closing date

15. Understand that the purchaser will require the vendor not to solicit patients after closing and not to compete with the purchaser within a defined geographic distance for a certain time period after closing

16. Consider whether you wish to remain as an associate after closing and on what terms and conditions; typically a vendor can expect to be paid 45 per cent (not 40 per cent) of Collected Billings

17. Hire industry recognized professional advisors who focus on advising dentists in transitioning and selling dental practices PA