Welcome to the latest edition of Hempsons’ Dental Newsbrief.

This edition will focus on different aspects of selling a dental practice and with that our first article written by Lisa Davison and James Butcher offers some top tips when selling a dental practice.

Selling a dental practice can be daunting, in his article James Molloy explains the sales process and considers the key steps of the selling process.

Your dental premises might be the most valuable asset of the practice. Zainab Hassan discusses the key lease terms which you should seek to negotiate to limit your exposure and fully benefit from the use of your premises.

If you are employing staff it’s important to consider changes to employment law. With the new maternity, adoption and shared parental leave law that came into effect in April 2024, employment specialist Henrietta Donnelly explains what you need to know.

April also saw changes to the skilled worker visa route. Henrietta highlights the key updates.

We hope you will find something of interest in this Newsbrief.

If you would like more information, or to discuss any of the issues raised in our Newsbrief please do get in touch.

Here are some top tips to assist you with the legal aspects of selling a dental practice:

Valuation advice

If you are considering selling your practice in the future, some efficiencies in the business at an early stage will enable you to maximise the value of your practice. Dental practices can be valued a number of ways, and it is therefore important to discuss your options with specialised brokers at the outset.

Maintain a good relationship with the proposed buyer(s)

Whilst lawyers will negotiate on your behalf, there are some matters that are purely commercial and are much more easily dealt with through direct communications between the parties. Maintaining a good relationship with the buyer(s) will assist with this and can also help keep momentum on the transaction.

Gather due diligence

Irrespective of who you are selling to, whether it is an associate or a dental corporate, every buyer will want to conduct a full due diligence exercise. Your advisers will assist you with pulling together legal and financial due diligence. This ‘information gathering exercise’ can be prepared in advance and many advisors will set up a data room for ease of uploading and sharing documents and data. It is important to keep on top of the due diligence, being as transparent as possible and to refresh it if there are any delays in the transaction.

Dilapidations

A prudent buyer will want to carry out a property survey to highlight any items of disrepair, any dilapidation liability under any lease and how that can affect valuation of the property. We would therefore advise dealing with any simple repairs and decoration ahead of marketing the practice for sale. This also includes making sure all regulatory documentation is in order (such as Fire Risk Assessments, Legionella assessment, asbestos survey and management plan) and any remedial actions have been carried out. Staying on top of this will minimise any avoidable delays and any potential price chip at the eleventh hour.

Understand the property position

As well as selling the business, you will need to consider how you are going to sell the property interest. Property can be sold freehold or leasehold and this may depend on your existing arrangement and/or your investment requirements. Selling a leasehold property might be more complex but is less of a capital investment for potential buyers and may therefore be more attractive. If the property is leasehold, you will need to consider the length of the lease left to run – can it be renewed ahead of sale to make it more appealing to a buyer? Can the lease be assigned/transferred without any restrictions? Does the landlord require a rent deposit or guarantor from the buyer or will they require you to enter into an Authorised Guarantee Agreement (AGA)? Note that leasehold property is likely to involve third party landlords which need to be engaged early in the process to avoid delays.

Instruct an experienced professional team.

There are many pitfalls when selling a dental practice. Make sure you avoid them by seeking advice from experienced and specialist professionals – surveyors, accountants and lawyers. A professional team with sector specific knowledge is invaluable and will stand you in good stead when selling your practice. Such experts can be instructed ahead of selling your practice to ensure you are fully equipped and in the best position possible for a smooth sale.

Selling a dental practice can be daunting. Knowing where to start, how long the process can take and how to maximise your return are all common concerns. To assist, this article breaks down some of the key steps in the sale of a dental practice from a property perspective once a buyer has been found.

Note that these steps will be taken alongside the corporate elements of the transaction, which usually involves the drafting of a Sale and Purchase Agreement (SPA). The SPA will contain important terms such as:

• The agreed price
• Any restrictive covenants
• Any warranties and specific indemnities

Once the key sale terms have been agreed with the buyer and formally documented in Head of Terms, the legal process can commence.

As part of their due diligence, the buyer will seek a detailed understanding and specific information in relation to the property being sold. This will require you as the seller to:

Produce evidence of title (i.e.) ownership of the property.

This can be done by a simple Land Registry search, unless the seller holds a lease, in which case there are other checks that can be done. This is also important as the seller needs to ensure that the title is in the names of all current property-owning principals (and not former principals who have, for example, retired). If the title is not up to date, this will need to be rectified before the property can be sold. This can lead to delays and increased costs.Note that if the seller holds the property under a lease, a detailed review of that lease must be carried out to check whether it can be assigned (transferred). If assignments are permitted, this will usually require the prior written consent of the landlord before completion. In most circumstances, there are additional conditions to the assignment that must be satisfied before the landlord will grant consent. Third-party landlords add an additional layer of complication to a sale and should therefore be engaged early in the process to avoid unnecessary delays.

Issue replies to Commercial Property Standard Enquiries (CPSEs).

This is a standard form used in commercial property transactions and contains questions relating to the property’s physical condition, the property boundaries, whether there are any rights or agreements over the property for your benefit or for someone else’s benefit, and whether there are any notices or disputes in relation to the property. The enquiries are lengthy and your legal team can assist with those responses.

Produce statutory compliance documents.

It is the Seller’s responsibility pre-completion to comply with all statutory legislation in connection with its use of the property. This liability will transfer to the Buyer on completion. The key documents required include:

• Energy Performance Certificate (EPC). This assesses the energy performance of the property. An up-to-date EPC is a legal requirement for anyone selling a property and they expire every 10 years. The Seller should therefore check whether any EPC carried out needs renewing. There are also minimum energy efficiency standards (MEES) currently requiring the property to have a minimum energy efficiency rating of “E”.
• Asbestos survey (generally applicable for pre-2000 constructed buildings only). This will involve an on-site inspection of the property by a specialist surveyor who will examine ceilings, walls, and floors to identify any materials which contain or may contain asbestos containing materials (ACMs). If any ACMs are identified (or are presumed to be present), an appropriate asbestos management survey must be put in place and any remedial actions complied with. This is typically renewed every year.
• Fire Risk Assessment (FRA). Again, this will involve an on-site inspection by a specialist assessor to identify potential fire hazards, and to ensure that adequate fire prevention measures are in place to protect everyone in the building. The FRA should be up to date and any remedial actions completed.
• Legionella Risk Assessment. This will assess the risk of Legionella bacteria growth in the water systems, and any measures required to prevent that risk. Again, this assessment should be up to date and any remedial actions completed.

The buyer may wish to raise additional enquiries relating to the property in response to the documents received from the seller and the replies to the CPSEs. The enquiries may also relate to any matters that are revealed in the buyer’s pre-contract property searches.

If there is a mortgage secured against the property by way of a legal charge, that mortgage will need to be redeemed (i.e.) repaid), prior to the completion of the transaction. Following completion, the legal charge will need to be removed from the title before the Land Registry can register the transfer and the buyer as the new owner.

The premises from which a dental practice operates is often the most valuable asset of the practice. It can also be the biggest liability both in terms of capital expenditure and inherent liabilities. It is therefore essential that you take legal advice from the outset to ensure the terms on which the practice occupies the premises are appropriate for the continued requirements of the practice.

This article looks at the key lease terms which you should seek to negotiate to limit your exposure and fully benefit from the use of your premises.

Repair

The single greatest cost or liability to a tenant under a lease (excluding the rent) is the cost of complying with the repairing obligations including obligations at the end of the term.

In order to limit your exposure, you should consider:

• attaching a schedule of condition to your lease. This means you would not be required to put the premises in any better state of repair or condition than as evidenced by that schedule. It also means that you are only required to hand the premises back to the landlord ‘in no worse condition’ than as evidenced in the schedule
• requesting a cap on any service charge payable under the lease
• carving out any ‘big ticket’ items, such as the roof, particularly if it is not in a good condition at the start of the lease

Service charge

Where premises form part of a larger building, the lease will ordinarily include service charge provisions where the landlord will be under an obligation to provide certain services, in return for the tenant paying a proportion of the overall costs of those services. The services provided by a landlord typically include repairing the structural and common parts of the building, ensuring that any common parts are kept clean and maintaining any shared service media.

You should ensure that the services are adequate for the continued running of the business from the premises, get a firm understanding of the likely service charge payable and request the historical service charge/service charge for the next accounting year. You should also fully understand the terms of the lease and exactly what can be charged back to you.

Sharing occupation with dental professionals

This is a key term that allows hygienists, technicians, etc to occupy the premises to provide services alongside general dentistry services. It also allows you to use your premises more flexibly and ensure your practice can continue providing its services to all your patients without breaching any of your tenant covenants.

When agreeing the lease with the landlord, you should request the ability to share part of the premises with other dental professionals who deliver such services on a part-time or full-time basis. Given the arrangement is a more flexible one, it is preferable to have this in the lease should you, even if you do not have immediate plans to, share occupation.

Dilapidations

Dilapidations generally covers the elements of disrepair to the premises. In the lease, this may include:

• an obligation to first put the premises into repair at the date of the lease. This is usually described as putting ‘the premises in good and substantial repair,’ which is a high standard and can be expensive
• an obligation to reinstate any works carried out by the tenant during the term of the lease. This may include any works carried out by the Seller(s) and/or their predecessors and could be expensive
• obligation to lay new flooring at the end of the lease. This is a common requirement in modern commercial leases and can be an unnecessary expense. We would always suggest pushing back on this if the premises did not have new flooring at the start of your occupation
• obligation to comply with statutory requirements. This could include works required to the premises to comply with legislation (for example, relating to accessibility or sustainability) or could relate to regulatory obligations including holding a fire risk assessment, asbestos report and management plan and dealing with any remedial actions in those reports

It is worth bearing in mind that if you are entering into a new lease or if an existing lease is being assigned, the landlord will be entitled to carry out a schedule of dilapidations at the end of the lease. This is referred to as a ‘terminal schedule of dilapidations’. You will generally be responsible for the cost of preparing that schedule and for any items in it.

Irrespective of how the premises is held or the standard of repair required, the starting point is to instruct your professional advisers at the outset to review the premises position at an early stage so you can look to address and consider the best way forward for you and your practice.

The Maternity Leave, Adoption Leave and Shared Parental Leave (Amendment) Regulations 2024 came into force on 6th April 2024.

The regulations extend statutory protections from redundancy to pregnant women and new parents who have recently returned from maternity, adoption, or shared parental leave.

The extensions now cover pregnancy and a period after return to work.

The key points of the regulations are:

• workers taking this kind of leave must be offered any suitable alternative employment in a redundancy situation
• the protection is for 18 months from either the expected week of childbirth or the placement for adoption
• the protected period can be changed in certain circumstances
• these new protections will apply to pregnancies disclosed to the employer on or after 6 April 2024, and any maternity, adoption and shared parental leave ending on or after 6 April 2024

The eligibility criteria for the special protection are as follows:

• pregnant women: the protection during pregnancy begins as soon as the employee informs their employer of the pregnancy
• new parents: the extended protection covers new parents who have recently returned from any period of maternity or adoption
• shared parental leave: the new protection also applies to employees taking at least six weeks of shared parental leave

Employers will need to update their family-friendly policies and redundancy processes to ensure compliance with the extended statutory protection.

Employers will be required to provide suitable alternative vacancies to employees on relevant leave in the event of a redundancy process, and this will need to be factored into any redundancy procedure taking place after 6 April 2024. Employers need to be aware of the new potential risk of claims if they fail to offer the required protection.

The UK government has announced significant changes to the skilled worker visa route that came into effect on 4 April 2024. Here are the key updates:

Increased salary thresholds

• the minimum general salary threshold for skilled workers is increasing from £26,200 to £38,700 per year – a 48% increase
• the “going rates” or occupation-specific salary thresholds are also increasing substantially, from the 25th percentile to the 50th percentile (median) of fulltime earnings for that occupation

This change will impact the NHS and healthcare sector, as employers may need to adjust salaries to meet the new threshold, potentially affecting recruitment and retention of international staff.

Transitional arrangements

• those who had a skilled worker visa before 4 April 2024, and apply to extend it or apply for settlement before 4 April 2030 do not need to meet the new salary thresholds. Instead, they only need to be paid whichever is the higher of £29,000 and the ‘lower going
  rate’ for that job
• for the transitional arrangements to apply, for skilled worker visa holders must make sure they extend their permission to retain lawful status and remain under this route. Following this Indefinite Leave to Remain applications must be made before 4 April 2030

Immigration salary list replaces shortage occupation list

• the Shortage Occupation List (SOL) has been replaced by a more limited Immigration Salary List (ISL) containing just 21 eligible occupations
• the 20% salary discount for shortage occupations has been removed, except for jobs on the new ISL

Dependant restrictions

• care workers and senior care workers migrating to the UK will no longer be able to bring dependants
• sponsorship for Health and Care Visa applicants will be limited to CQC-registered providers in England

This change will affect the ability of care workers and senior care workers to bring their families to the UK, potentially impacting their recruitment and retention.

If you are being recruited to an NHS role under a general Skilled Worker Visa, these changes may impact you, depending on the role you are undertaking and when you expect to arrive.

Supplementary employment

The ability for skilled workers to have supplementary employment has been expanded to allow work in a wider range of occupations, while employers face more stringent compliance requirements when hiring these workers for additional roles.

Skilled workers will now be able to take on supplementary employment in any occupation that is eligible under the skilled worker route, not just the same occupation as their sponsored role. The supplementary employment must still be done outside the contracted working hours of the sponsored job and is limited to a maximum of 20 hours per week.

Employers taking on skilled workers for supplementary employment must now conduct additional checks, including verifying the worker’s eligibility, getting confirmation from the sponsor employer, and ensuring the worker is not exceeding the 20-hour limit across all supplementary jobs.

Conclusion

The NHS will not be directly impacted by the changes to the skilled worker visa route as they will continue to have access to the Health and Care Visa route, which is exempt from the increased salary threshold and Immigration Health Surcharge.

The changes to the skilled worker visa system will have significant implications for the health and social care sector, particularly in terms of recruitment and retention of international staff. Employers may need to adjust salaries to meet the new threshold, and the restriction on dependants will affect the ability of care workers and senior care workers to bring their families to the UK.

An earn-out is as a form of deferred consideration, i.e. monies (typically) paid from a buyer to a seller at a later date once certain conditions or thresholds (usually relating to maintaining or increasing revenue, profits, patients, etc) are met. For example, where a seller stays on as an associate following formal completion of a transaction, they could be entitled to a further fixed or variable sum, conditional upon maintaining the profitability of the practice for a period of time. Provided that the profitability target is met or exceeded, the deferred consideration becomes payable to a seller.

Often, earn-outs are used in private equity transactions, and commercially are often seen as helping to incentivise sellers to maintain or grow the business being acquired (using the example above), but an earn-out can also be a useful tool to bridge gap(s) between a buyer and a seller when agreeing a valuation for the practice.

Earn-out structures can also stretch over an extended period of time, involving several conditions or targets resulting in several payments. Provisions such as these require careful and detailed negotiation and drafting as the conditions or targets need to be clearly identified and achievement of them addressed in objective terms, to avoid any doubt as to whether a target has been met and a payment is due. Any such earn-outs should ideally be raised from the outset, even if only in brief and nonbinding terms in the memorandum of sale.

The taxation implications of earn-outs also need to be considered as they lead to complex taxation questions, such as when the seller is deemed to have received the payments (i.e. on the date of the sale agreement or only when the earn-out payment is made). Similarly, it can be difficult to establish the consideration for the purposes of calculating the stamp duty payable on a sale and purchase of shares. In a purchase of shares earn-out payments are likely to constitute a further payment for the sale shares, and such amounts are subject to stamp duty. Stamp duty that is payable on an earn-out will be chargeable in accordance with the contingency principle, the guidance provided by HMRC considers that there are five types of contingency payments. The three most common under this principle asks whether the earn-out has a stated minimum, a maximum or whether the earn-out is wholly unquantifiable.

Generally, a buyer will want to place a cap on the maximum amount that is payable for the shares to have certainty, but having cap on an earn-out will mean that a buyer will be paying stamp duty with reference to the highest amount payable under the terms of the contract. It is important to note that it is not possible to re-coup any excess stamp duty paid.

Accordingly, advice is needed at the outset from tax advisors as, understandably, both a seller and a buyer will have different commercial and taxation goals when negotiating the terms of an earn-out.

Another difficult aspect of an earn-out is control of the business post completion. Clearly, the buyer wants to assume control but could then manipulate the business to avoid the conditions or targets from being met, thereby avoiding having to pay the earn-out consideration. Accordingly, an important part of the negotiation of the earn-out provisions is restrictions on the buyer, to ensure that the seller’s opportunity to gain the earn-out payments is not unfairly deprived.

Similarly, a seller staying on as an associate will need to consider the termination or ‘leaver’ provisions of his or her associate agreement, to mitigate against the risks of a buyer terminating the agreement, thereby depriving the seller of the opportunity to benefit from the earn-out.

In summary, earn-out provisions are useful in bridging a gap between buyer and seller in relation to the consideration and can incentivise a seller, and provide comfort to a buyer, that the business acquired will continue and grow. However, earn-outs are complex, are likely going to be one of the most negotiated part of any transaction and, in light of this complexity and the tax implications, it is vital for your solicitor to draft the earn-out provisions in collaboration with your tax advisor.

This material is provided for general information only. It does not constitute legal or other professional advice.