If you’re thinking about buying a children’s day nursery, or have already found the business of your dreams, chances are your head is swimming with numbers. And that’s not surprising. Despite the many government grants currently available to those engaged in providing early years’ education, looking after children is a costly business. After paying for staff, rent, and resources such as toys, equipment and food, margins can be slim for all but the most successful children’s nurseries. You need to be confident that the numbers stack up.
However, in these exciting early days it’s also crucial that you don’t overlook two other matters which commonly cause problems and costly delay for first-time buyers of children’s nurseries: namely, registration with Ofsted and the legal transfer of premises.
Buying a Day Nursery: Ofsted registration
As you probably know, children’s day nurseries are nationally regulated by the Office for Standards in Education (Ofsted), which inspects all childcare provision. The nature of these inspections covers such things as suitability of premises, staff, resources and activities, ratio of adults to children, and health and safety. All children’s nurseries, therefore, must be registered with Ofsted on its Early Years Register.
Where a day nursery changes hands, or a new business is set up, the new owner must go through the registration process. Applicants for registration must be aged 18 or over and have the right to work in the United Kingdom. Registration can be made by an individual or an organisation.
Sounds straightforward enough, but what you may not appreciate is that this registration process is incredibly thorough, taking up to 26 weeks to complete. What’s more, until such time as the registration has taken effect, your new business will not be allowed to operate. For the unwary, this can have devastating consequences.
Why does Ofsted registration take so long?
As an applicant for the Early Years Register you’ll have to jump through a number of potentially time-consuming hoops. Initially, you could contact your local authority who can provide lots of helpful information and advice but then, as a first step, you and any other individuals connected with the application must complete a Disclosure and Barring Service (DBS) check online. Ofsted will, in addition, carry out a check with the local authority children’s services department to see if you, or others connected with the registration, are known to them in connection with care orders or other information that might bring into doubt your suitability to work, or be in regular contact, with children.
Next, as part of your online application, you will be required to consent to Ofsted carrying out further checks on both you and any other connected individuals, including a health check and checks on premises and equipment. If, during the course of these checks, Ofsted has concerns about your suitability, registration will be refused unless those concerns can be resolved to Ofsted’s satisfaction. As you might imagine, all of this checking takes time.
Without Ofsted registration your day nursery will be unlicensed to operate
It is an offence to provide childcare without being registered, or on premises that have not been approved. So, if you’re not on the ball, you could find yourself in a position where the seller terminates their Ofsted registration to coincide with the sale before your new nursery business is registered, leaving you in the desperate situation of having children on your books with you unable to provide them with day care.
We heard of one quick-thinking individual in this unfortunate situation who was able to mitigate some of the damage by persuading a number of neighbouring nurseries to take the children until his registration came through. But, of course, this is far from an ideal start for any new nursery business. Thankfully, there is a better way to make sure that business continuity is not lost…
Ofsted registration: how to ensure business continuity for children’s day nurseries
To avoid the possibility of your day nursery being unlicensed for any period you’ll need to be proactive with the seller early on in the transaction process. As part of the negotiations, you should request a provision in the Sale and Purchase Agreement that the seller agrees to maintain their Ofsted registration after the completion date and until such time as your own registration has been confirmed.
In these circumstances it is normal to agree and include the following provisions in the contract: a) that the seller continues to provide some form of consultancy to the new business (it may be as little as a couple of hours a week) and b) for you, the buyer, to provide an indemnity to the seller agreeing that should Ofsted make any kind of claim against the seller with regard to the Ofsted registration, you will reimburse the seller for the amount of the claim and any associated costs. Such a claim, for example, may occur if you failed to make sure there was an adequate number of DBS checked staff to look after the children in your care during the transition period.
In practice (assuming you are taking your responsibilities seriously), it is highly unlikely that the indemnity provision will ever be invoked; but it gives your seller some comfort. So, for the sake of committing to a consultancy fee for your seller’s continued involvement in your business for a limited period, these extra provisions in your sale agreement make sound commercial sense and will ensure that your business remains licensed to operate from day one. However, to ensure that you can do so, you will also need to make sure that you have the right to occupy the business premises and that, in most cases, will depend on an assignment of the seller’s lease. This is another matter that commonly causes problems for buyers of children’s day nurseries.
Common problems with assignment of a commercial lease
Unless you are buying a freehold property from which to run your nursery business, you will as part of the purchase process also require a deed of assignment from the seller, transferring ownership of the premises lease to you or your company. The assignment will also require the consent of the landlord. Unfortunately, this is another straightforward sounding process which can often prove problematic for buyers.
Firstly, you will need to check the terms of the lease to see whether an assignment is allowed. Assuming it is assignable, the assignment will invariably require the landlord’s consent. Although the lease will usually state that such consent is not to be ‘unreasonably withheld’, in practice, it is rarely a speedy process for the following reasons. Firstly, it is currently very much a landlord’s market; there is little incentive for the landlord to agree a speedy assignment if s/he is perfectly happy with the existing tenant and there is no rent payment default. Secondly, negotiations relating to the assignment of the lease are usually conducted through the landlord’s solicitor, not just the seller’s solicitor. So the negotiations between the “triangle” of solicitors can be a time consuming process if not managed proactively by your adviser. It’s another complicating factor in the transaction that can cause delay, and the costs of the landlord’s solicitor (to be met by the seller or buyer by agreement) are often a surprise not budgeted for.
Understanding the terms of your commercial lease
In addition, it’s important to make sure that you are aware of the terms of the lease to be assigned. In particular, you need to carefully check the remaining term of the lease; it may be there is only a few months’ tenure remaining, which is clearly unsatisfactory for the future stability and saleability of your business. Rent review frequency, repairing obligations and service charges are other key areas. Establishing whether or not the lease is a “protected” business lease can make a big difference to the value of a business where location is important and alternative premises are scarce.
Be proactive and seek early legal advice
So, if you’re interested in buying a children’s nursery, as well as giving your attention to the financials, the best thing you can do to try and avoid problems both with Ofsted and the landlord of the premises is to give them your focus early on in the transaction process. The value to be gained from using the services of a solicitor experienced in buying and selling businesses at this early stage is immeasurable. In particular, s/he will be able to get a copy of the lease and help you understand the significance of its provisions. It could mean the difference between making an offer or not, and save you time, money and sleepless nights.
Make a free enquiry
The sooner we become involved in the process of helping you to buy your children’s nursery the more likely it is that your purchase will be successful, so please contact us today.
Our full contact details can be found on our Contact Us page.
We look forward to hearing from you.