Purchase and Sale - THIRD POST

Part II

Once you have come to grips with the concept of selling or buying a practice, and, if you are selling, you have ascertained that the timing of the practice is most appropriate for the purposes of obtaining the best value for the practice, the next issue to be dealt with who are the parties to the transaction and who else might be involved in the matter. While the obvious parties are the purchaser and the vendor, it should be remembered that there a number of other individuals who will be privy to the agreement and will have some impact on the transaction.

The Vendor may simply be a chiropractor who has established the practice and is now desirous of disposing of same, or may include a management company which owns some of the assets or a spouse which may have an interest in the practice. Even more customarily, there are individuals or entities which may have an interest in the practice and who will have to become involved in the transactions. These parties may include the bank of the vendor which will have to consent to the discharge of any encumbrances registered against the assets of the practice; a landlord who may have to consent to the negotiation of a new lease or the transfer of an existing lease; the parties who might be leasing equipment; the companies who may licence software; employees who may be remaining at the practice after the sale and of course the patients. In the case of the purchaser the parties may be quite similar in that in addition to the actual purchaser, the landlord, bank and employees may play an integral part in the transaction.

From the Vendor's standpoint there are different considerations with respect to dealing with the individuals, as indicated above, who may play a part in the transaction. With respect to the Vendor, it is important that the actual persons who have an interest in the transaction be made a party to the transaction, ie. any corporation or a spouse.

With respect to the bank, a vendor should ensure prior to the commencement of negotiations what encumbrances, if any, will be required to be discharged at the time of closing and the costs associated with such a discharge. If a practitioner is carrying on two practices simultaneously, a discharge may be required of all debts owed by the practitioner to the bank notwithstanding that the debt is owed to the bank for a matter unrelated to the practice. This may be a requirement of the bank and unless consent is given by the bank to the closing without payment of all indebtedness of the Vendor, the Vendor may be required to make such payments in accordance with the statutory obligations which will be discussed later in the articles.

In the case of the landlord, the situation is not quite so simple. While the consent of the landlord may be required to complete the transaction or the landlord may be asked to negotiate a completely new lease, the timing by the Vendor with respect to the aforementioned request is highly critical. It is quite likely that any proposed Agreement of Purchase and Sale submitted by a Purchaser will be conditional on such matters as bank financing or graduation. If there is a likelihood that conditions other those involving the lease (ie financing or graduation) will not be fulfilled it may be more than a nuisance if a Vendor contacts the landlord for consent to transfer a lease. The request might be costly in terms of the investigation which the landlord may undertake as a result of the request by the Vendor and for which the Vendor will be responsible. It may be more appropriate to deal with the conditions concerning the lease when the other conditions have been fulfilled. However, it is imperative that the lease be reviewed by the lawyer acting for the Vendor prior to any Agreement being executed by the Vendor.

An even trickier situation involves that of the employees. If, as part of the transaction the employees will be required to continue at the practice, the Vendor should have some reasonable expectation that the employees will remain. Obviously, if the Vendor is relocating to a community many, many miles away, ie a different province, and the staff is comprised of family members, then it may be unlikely that the staff will be remaining. However, the timing of telling the staff of the possibility of the sale by the Vendor is highly delicate and should be dealt with as such. I have experienced situations in which the Vendor informed the employees of the pending sale at the outset and I have also experienced situations in which the Vendor refrained from advising the employees until it was absolutely necessary. Obviously it is a matter which should be dealt with very carefully depending on all of the factors affecting the parties.

Unless the agreement relating to leasing of equipment or such things as computer software require immediate consideration by a vendor, such matters should be able to be dealt with in the ordinary course of events, ie. after the signing of the agreement. However, in all cases, the agreements and commitments of the Vendor must be reviewed prior to the execution of the Agreement.

In addition to the other parties who will have an impact in the transaction, it is just as important to consider the involvement of the lawyer and the accountant. In the case of each of these individuals, they should be contacted prior to the negotiations being undertaken by the vendor and the purchaser. Both the lawyer and the accountant should be allowed to advise the Parties of the issues which will be involved in the transaction, ie. the responsibilities of each of the parties both before and after closing and any additional considerations with respect to such matters as income tax, and professional matters. There are a number of considerations in the completion of the transaction which can have an impact on the finances of the parties. Once the negotiations have been completed it is difficult for a lawyer and accountant to bring new issues to the table. While the agreement may not yet have been completed there is a matter of integrity in the negotiation process which can do damage to the relationship of the parties in the event that either Party is required to reverse his or her earlier position.

The Parties may involve a Real Estate Agent or Business Broker in the transaction. This individual may be acting on behalf of a Vendor who has listed his or her practice for sale. The individual may be acting on behalf of a Purchaser who is seeking a practice. In any event, the agent may assist in locating the practice, evaluating it, assisting with a transfer of a lease, assisting in the preparation of the Offer to Purchase, obtain financing and generally assist in the completion of the transaction. Unlike lawyers who are prohibited from contacting the client of the other lawyer, whether it be a purchaser or vendor, the agent is not restricted from such contact. As such, an agent is in a position of intervening when difficulties may arise between the purchaser and vendor with respect to ensuring that there is an orderly transfer of the goodwill of the practice. The writer has participated in the sale/purchase of practices where it is unlikely that the transaction would have been completed. Both the vendor and the purchaser had become dejected because of the problems which were arising with respect to bank financing and a transfer of the lease. The agent was able to assure the parties that the difficulties were not insurmountable and, in fact, the problems were overcome by the intervention of the agent.

Finally, the Vendor must take into account any issues involving patients. At what point in the selling a practice should the patients be made aware that the Vendor will be terminating his or her relationship with the patients. The decision is obviously one of choice by the doctor but it is imperative that it not interfer with the continuation of the goodwill of the practice. It is likely that there will be a transition period to allow the purchaser to become involved with the practice. It is during this time that the patients will be introduced to the purchaser. More on this subject will be dealt with during a discussion of the Agreement of Purchase and Sale.