If you’re thinking of selling your care home, it’s crucial to consider several key factors such as deciding between share or asset sales, accurately valuing your business, conducting thorough due diligence, and comprehending the legal implications. This article delves into these essential areas.
Selling your care home: Legal issues to consider
- Share or asset sale?
An asset sale allows buyers to be selective with which assets and liabilities they want included and excluded. Assets can include; property, goodwill, inventory, and customer lists.
For the seller, an asset sale can result in different tax treatments for various types of assets. When a company sells assets, it generally has to pay taxes on the income from that sale, which is subject to corporation tax. If the owner decides to take the money out of the company afterward, or if the company is closed and the remaining money is distributed, this withdrawal is also taxed, this time as income tax. This situation can make selling assets less appealing from a tax standpoint, especially when compared to selling shares of the company. This is because, with a share sale, the sellers might pay less tax through reduced rates available under the business asset disposal relief, making it a more tax-efficient way to exit the business.
In a share sale, the buyer purchases the shares of the company, which means the buyer will acquire everything that the target company owns (including liabilities). There is therefore no need to transfer individual assets and liabilities, which can be beneficial from a construction perspective.
For the seller, a share sale is typically simpler and may offer more favourable tax conditions. However, buyers might be less inclined to prefer this method if the company has significant liabilities or potential legal issues. Striking the right balance between which method will work best for both parties, can be achieved with the input of efficient and effective advice at the outset of a transaction.
- Valuation and due diligence
An accurate valuation requires understanding the legal aspects of your care home including regulatory compliance, property conditions, and operational efficiencies. Buyers will conduct thorough due diligence, so anticipate this by getting your care home in order and compiling as much documentation as possible before engaging with a serious buyer, such as compliance records, employee contracts, and financial statements, to speed up the process.
When valuing a care home, sellers must account for both tangible assets (like the property itself and any medical equipment) and intangible assets (such as the reputation of the care home, operational licenses, and contracts, and the trained workforce).
Legal aspects play a significant role; the care home’s compliance with healthcare regulations, the state of the property in terms of healthcare facility requirements, and operational efficiencies affect its market value. A care home that exceeds standard regulatory requirements or has specialised services may command a premium above market rate.
Due diligence is often an intensive process in which the buyers’ legal team will scrutinise every aspect of the care home to ensure their client has as much information as possible about the business that they’re purchasing. To facilitate a smoother due diligence process and potentially enhance the value of the care home, sellers should prepare:
- Detailed financial statements and forecasts.
- Detailed assets lists.
- Compliance records with healthcare regulations.
- Employee contracts and staffing details.
- Maintenance records of the property and equipment.
- Documentation of any ongoing or potential legal issues.
- Regulatory compliance
Compliance with Care Quality Commission (CQC) standards remains paramount, especially during the sale process where there will likely be increased scrutiny on compliance. Ensure your care home is up-to-date with health and safety standards, staffing requirements, and care quality benchmarks. Non-compliance can be a deal-breaker, so addressing any issues well in advance is important.
If the buyer isn’t already registered with the CQC, getting registered can take up to three months. However, contracts can be exchanged first, and the final sale is completed once registration is done. If buying shares in a company that’s registered with the CQC, the CQC must be informed about the planned change in who controls the company.
- Employment law considerations
The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) will be operative if your business has employees. Navigating TUPE effectively is essential for maintaining staff morale and ensuring continuity of care. Transparent communication and legal guidance are key to managing this transition smoothly.
The Rubric team are experts in employment law, please feel free to get in touch if you need advice.
- Property and lease transfer
When selling a care home, the intricacies of transferring property or assigning leasehold interests are significant and require careful thought. The process varies greatly depending on whether you own the property outright or occupy it under a lease. Here’s why engaging an experienced property lawyer is critical for a smooth transition:
- Lease agreements: If your care home operates on leased premises, it’s vital to understand the terms of the lease, especially regarding transferability and any conditions that must be met for the lease to be assigned to a new owner.
- Ownership transfers: For properties that are owned, transferring ownership involves numerous legal steps, including ensuring clear title by dealing with any mortgages or liens on the property’s land title, and ensuring stamp duty tax considerations are dealt with.
- Compliance and permissions: Care homes are subject to specific regulations, including zoning laws and planning permissions, especially if the new owner intends to modify the premises or change its use. Understanding these legal requirements is crucial to prevent post-sale disputes or complications.
- Addressing restrictions: There may be restrictions or covenants on the property’s land title that could impact the sale or proposed future operations at the property.
- Negotiating the sale
The sale negotiation is where the legal intricacies of selling a care home come to the forefront. It involves drafting and reviewing sale agreements, handling negotiations on price and terms, and ensuring all legal obligations are met. Expert legal advice is key at this stage to protect your interests and facilitate a fair and effective agreement.
- Post-sale legal obligations
Even after the sale has completed, both buyers and sellers will be subject to continuing legal obligations. These can include; post-sale employment rights, effecting the assignment or novation of resident contracts, and abiding by post-completion warranties and indemnities. Understanding these responsibilities and planning for them in the sale agreement can prevent disputes and ensure a clean break.
Thinking of selling your care home?
Our team at Rubric Law specialises in sales and acquisitions, commercial, employment, and property law, providing comprehensive support to care home owners throughout the sale process.
For personalised advice and to learn more about how we can assist with your care home sale, please get in touch:
0117 435 4350
info@rubric.law
