As the name suggests, a dental practice purchase agreement is the document that actually spells out the terms and conditions of the sale. This should be drafted by an attorney to ensure that all legal concerns are addressed. Still, it is vital for all dental practice buyers and sellers to understand what needs to be in the dental practice purchase agreement. Here are some of the most vital but often overlooked clauses.
Any purchase agreement should have listed contingencies, or specific events that must occur in order for the purchase to move forward. Should any contingencies fail to happen, you can walk away with no liability. Sample contingencies include, but are not limited to:
Approval of the existing records by the buyer’s accountant
Obtaining a loan at the desired terms
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Buyer’s assumption of the existing or entry into a new lease at acceptable terms
Buyer obtaining attorney approval of the purchase agreement
- Non-Compete Covenant
A non-compete covenant prevents the seller from practicing dentistry within a certain geographic radius from the purchased practice for a period of time. This covenant needs to be detailed, specifying which related activities, such as becoming a shareholder or director of a nearby practice, are allowed or prohibited. Of course, if the seller stays on with the practice for a period of time, the non-compete covenant should not start until the seller’s last day of employment at the practice.
- Defective Dentistry
If something small goes wrong with dental work performed prior to the sale, it is reasonable to expect the buyer to fix it. However, if substantial failure occurs, responsibility for fixing it should be allocated between the buyer and seller. A common provision states that the seller can choose to either return to the practice to fix the work or pay the buyer 50 to 75 percent of the buyer’s customary fee to perform the work, and specifies both the time period for which the election is in effect and the method by which the buyer will notify the seller of such issues.
- Warranties and Representations
Warranties and representations are the seller’s statements on which the buyer’s purchasing decision is based. All verbal representations should be written into the purchase agreement. Common warranties include broad statements about the worthiness of the practice, such as having no liens or encumbrances on the assets and the seller’s dentistry license never having been revoked.
- Accounts Receivable
Most dental practices have numerous accounts receivable, or monies that are owed to the practice. The buyer may choose to purchase all, none, or some of the accounts receivable. This election, along with specifics on how any accounts receivable retained by the seller will be collected, should be written into the purchase agreement.
While the purchase agreement is the key document in a dental sales practice purchase, it is not sufficient on its own. Other important paperwork that should be carefully drafted includes, but is not limited to:
Intent to Buy Letter
Office Lease (if applicable)
Purchasing a dental practice is a fairly straightforward process. However, carefully drafted paperwork, created or approved by an attorney, is vital to ensuring that all relevant issues are addressed up front and in writing.
Ascent Dental Solutions is a full-service agency dedicated to helping dentists build their practices and map out their careers. It is the brainchild of Dr. Kevin Coughlin, who earned his doctorate at Tufts University School of Dental Medicine and currently serves as a faculty member there. While Dr. Coughlin continues to practice dentistry as the principal owner of the 14-location Baystate Dental PC, he has a strong passion for helping fellow dentists maximize their success. If you are interested in learning how to take your dental practice to the next level, please contact Ascent Dental Solutions today at (800) 983-4126 to learn how Dr. Coughlin can help.