Nursing Home Acquisition and Sale Guide

Buying or selling a nursing home has complexities. As with share sale or purchase, there will be due diligence required to understand the corporate structure, accounts, goodwill, employees and the list can go on. A very important consideration is the commercial property itself, as well as investigation into equipment and the fixtures at the home.

We have experienced a large focus on occupation rates and health & social care issues within the care home to ensure that there are not any reports that are unsatisfactory when being assessed by the Care Quality Commission (CQC). Below we have highlighted important legal issues that should be considered when selling or purchasing a nursing home from our experts and their previous experiences.

Business Transaction

The first consideration for us is the structure of the sale or purchase. Will it be a share sale or purchase or an asset sale or purchase?

A share sale or purchase can take place where the care home is operated via a limited company. In this scenario the buyer would purchase all of the shares in the company, therefore they become the new owner of the business via the limited company. This means that the buyer is buying the care home as is. So, all assets and liabilities will be taken on by the buyer. Nothing changes in the limited company, contracts with employees for example will remain unchanged with both contracting parties remaining the same, but the owner of the limited company will be the buyer. This is why due diligence is so incredibly important, to ensure that extensive care is taken to find out everything about the assets and liabilities that you may be taking on as a buyer.

The alternative structure, an asset sale or purchase, is where select assets are chosen. For a care home this would usually be the property (whether via a transfer of the freehold or assignment of the lease), equipment, goodwill and any other assets needed to run the business. Employees would usually transfer via TUPE in this structure.

The main benefit of an asset sale or purchase is that liabilities and unwanted assets can be left with the seller. The buyer is not obliged to have them.

No matter which structure is chosen, there will be advantages and disadvantages both from not only a legal perspective but also a tax perspective. It is therefore important to carefully consider the best structure on a matter-by-matter basis.

Care Homes

As mentioned above, it is important that careful due diligence is carried out in respect of the property when purchasing a care home whether the transaction is taking place as a share or asset sale. It will be important to understand whether the property is owned or leased, whether there are any issues with the property and whether there are any planning or permitted use concerns. Buyers will also need to be aware of any other property aspects such as restrictive covenants or environmental issues. These will be discovered during the property due diligence phase of the transaction.

If the care home is operated from a leased premises it will also be important to review the lease to ensure that the business can be run by the buyer as required.  Another encountered when dealing with care homes operating from leased premises is the identity of the tenant. It is not uncommon that the care home is run by a trading company from a premises which is leased by a separate entity. If so that entity will need to be part of the transaction in order to assign the lease to the buyer or the trading company (if the buyer is buying that company as a share purchase).

If the transaction involves the transfer of a freehold property, this comes with its own considerations. For example, it may be necessary to ensure that mortgages are discharged by the seller on completion. It may also be the case that the property is held by a separate property holding company, in which case the transaction may involve a separate transfer of the freehold property or the purchase of the property holding company as well as the trading company. It is important to ensure that all mortgages and debentures relating to the property are discharged to ensure that they are not passed onto the buyer.

Care Quality Commission (CQC)

An important part of buying or selling a care home is CQC registration. A buyer will need to ensure that they are CQC registered. This process can take a long time, even when there are no issues encountered, so early attention is advisable.

Even if a buyer is purchasing the care home via a share purchase of a company already CQC registered it is still necessary to lodge a change of control notification with CQC. It is therefore crucial to deal with these issues as early as possible.

Considering the care home’s CQC reports and inspections will also be an important part of the due diligence for the buyer. A buyer will naturally want to know that the care home has remained compliant and not had any adverse findings against it in the years preceding completion.

Contracts

An important part of due diligence when looking at a care home relates to the contracts. This is important to firstly understand the revenue streams of the business and how the transaction will affect them but also to ensure there are no surprises such as breaches of contracts waiting in the wings.

It important to carefully consider resident contracts as well as block contracts with local authorities. It is important to ensure that these are in good order and that the transaction will not result in those contracts becoming terminable, for example via a change of control provision. Where such a provision exists, it is crucial to obtain consent to the transaction.

Some more things…

The above are just some of the considerations when buying or selling a care home. There are of course many other factors such as, number of bedrooms, average occupancy rates of the home, any health and safety issues and the make up of the staff operating the home.

It is true that many of the considerations discussed here are focussed more on the buyer as they will be taking on the business, however it is also in the best interests of the seller to ensure that the information required in relation to the above is in good order. This will make for a smoother and quicker transaction.

The corporate and property experts at Acumen have assisted many clients with the above when both buying or selling care homes in Sussex and beyond. If you are looking to buy or sell a care home, please do not hesitate to get in touch for a free initial consultation and we would be happy to help you get the transaction over the line!

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