Buying A Veterinary Practice? Beware The Elephant In The Room…

Buying a Veterinary Practice? Beware the elephant in the room...If you’re looking to buy your first veterinary practice, or perhaps searching for a complementary small animal practice to bolt on to your existing veterinary business, there’ll undoubtedly be a number of key factors high up on your vet purchase checklist – as well as plenty to think about.

When you’re not busy in clinic, questions about finance, location, reputation, client base, employees, equipment, practice systems and projected cash flows will demand your full attention.

But, when there’s an exciting business opportunity within grasp, there’s another less interesting but crucially important aspect of a veterinary practice purchase that’s often neglected by buyers in the early stages of the transaction, and that’s the veterinary practice premises.

Veterinary practice premises issues

Most veterinary practice buyers have a keen interest in value, size and location of the premises and, of course, in checking accreditation under the RCVS Practice Standards Scheme. But, beyond that, few give sufficient focus to the commercial property side of their transaction in the important early stages.

Add to that the fact that, under common law, the seller only has a duty to disclose latent defects in the property (ie, issues relating to title, such as rights of way and other third party interests), and it’s easy to see how, without experienced professional guidance, situations can, and do, arise where vet acquisition deals experience costly delays, or even fall over, due to unexpected and/or contentious property issues coming to light at the eleventh hour.

Types of Veterinary practices for sale in the UK

Your choice of veterinary practice premises is an important one, not least because the goodwill associated with the business you buy will be closely associated with the premises from which it operates.

In an ideal world, most vets looking to acquire a practice would choose modern, purpose-built freehold premises, giving them exclusive title to the property and valuable long-term security. However, for most, budget and a desire to operate from a particular geographical location significantly limit available options.

More typically, veterinary practice premises occupy older converted residential properties, retail units, rural outbuildings or other adapted business premises and are leased from a commercial landlord.

And whilst leasehold veterinary premises can also offer a perfectly viable commercial proposition, it is buyers of leasehold veterinary practice premises, in particular, who need to be vigilant during the acquisition process, for a number of reasons.

5 point checklist for buying leasehold veterinary premises

1. Understand the Landlord dynamic

Buyers of leasehold veterinary premises only buy a right to occupy the premises for the remaining length of time (the Term) agreed in the original lease between the seller and the landlord. Consequently, to legally transfer the premises, the landlord must also be included in the negotiations as a third party.

With a 3-way negotiation to manage (you, the seller and the landlord – not forgetting all parties’ respective solicitors), it’s perhaps not surprising that it’s often the work required to transfer leasehold business premises that holds up proceedings. And that can cost you money.

Matters that require input from the landlord include:

  • consent to transfer the lease (by way of a Licence to Assign)
  • consent to any mortgage over the property
  • approval of buyer’s references
  • possible rent deposit deed or director’s personal guarantee and/or authorised guarantee agreement as security for the buyer’s compliance with the terms of the lease.

You may, additionally, want to try and renegotiate certain provisions in the lease; for example, an extension of the existing term or the inclusion of a break clause (see point 4 below).

Bear in mind that that there is little incentive for the landlord to expedite the transfer process if your seller is a reliable tenant.

It’s important, then, to do everything possible to proactively help manage the relationship with the landlord from the earliest stages of the transaction, otherwise frustrating delays can occur.

2. Budget for additional costs

You’ve probably factored an apportioned cost for the veterinary practice premises into your purchase price for the business. However, much like when you buy a house, the transfer of leasehold business premises involves additional costs that you might not be aware of. These could include:

  • A Rent Deposit (normally equivalent to 3 – 6 months’ rent) as further security for the Landlord.
  • Payment of the Landlord’s legal fees (which could be anything from £500 to £3,000), although sometimes it’s possible to negotiate a split of these costs with the Seller. You will have to find this money upfront as the Landlord will require an undertaking (a written promise provided by your solicitor) that the funds are held on account and that their costs will be paid before they instruct their solicitor to undertake any work on the matter.
  • Payment of Land Registry and other search fees (approx. £250 – £400)
  • Fee for Notice of Assignment (approx. £50), confirming to the Landlord the date the legal transfer takes place.

3. Ask the seller lots of questions about the property – then ask some more!

Under common law, the burden of identifying any physical defects with the premises lies with the buyer. It is very much a case of ‘sold as seen’. It’s essential, then, that you make your own detailed property investigations before you exchange contracts.

The earlier you engage an experienced solicitor to advise you, the better. S/he will send a list of standard commercial property enquiries (known as CPSEs), covering all aspects of the title and condition of the property, to the seller’s solicitor.

CPSEs comprise a comprehensive list of questions including those relating to:

  • Location, extent and ownership of physical boundaries and party walls
  • Third party rights
  • Title and occupation of the premises
  • Access rights to and from the property and to neighbouring land
  • Structural defects
  • Utilities and services
  • Disputes
  • Planning and building regulations
  • Environmental matters
  • Insurance matters
  • Asbestos and fire safety
  • Fixtures and fittings
  • Rates and outgoings
  • Extensions and alterations

The length of time it takes to receive replies to these pre-contract enquiries will depend on how organised and efficient the seller and its solicitors are. And the quality of the responses will vary.

It’s not unusual to receive a whole list of responses along the lines of ‘not so far as the seller is aware’. In other words, the seller declaring that s/he has no knowledge of the issue, despite having taken reasonable steps to identify the answer. It’s also common to receive replies that trigger requests from you and your solicitor for further information.

The key with pre-contract enquiries is to be patient, persistent and thorough. Failure to give this process careful attention could have costly and troublesome consequences for your business.

4. Get a structural survey

In parallel with making pre-contract enquiries, it’s advisable both to inspect the veterinary practice premises yourself and to arrange for a professional structural survey. If there are particular queries that have arisen as a result of responses to your pre-contract enquiries of the seller, then these are something you should draw the surveyor’s attention to.

It could be that the survey results, and/or responses to CPSEs, justify a renegotiation of the purchase price. Or, in the worst case scenario, you may even need to reconsider the commercial viability of the deal. 

5. Examine the lease – in detail!

Most prospective purchasers of leasehold veterinary premises take the trouble to find out how many years are left on the lease for the property. Future business security is key for any growth strategy.

Few, however, are aware of how lengthy and complex lease documents can be nor, more importantly, appreciate or understand the potentially onerous nature of other common terms and conditions within it – as is evidenced by the number of enquiries we receive from business owners desperately looking for a way to get out of their commercial lease.

Common lease provisions which can catch out the unwary vet purchaser include:

  • No break clause, ie, no ability to get out of the lease any earlier than the agreed term
  • Frequent rent review dates giving the landlord the right to regularly increase the rent during the course of the term
  • Restriction on assignment and sub-letting
  • Onerous maintenance and repair provisions, including liability for pre-existing disrepair
  • Opt-out of the 1954 Landlord & Tenant Act (which gives a tenant a right to remain in occupation of the premises at end of the lease term)
  • Provisions requiring a top-up of the rent deposit
  • Prohibition on any alterations or works to the premises
  • Onerous service charge
  • Restrictions on hours of business
  • Restrictions on permitted use or ancillary uses
  • Restrictions on rights of access to certain parts of the premises

Any one of these provisions could cause a major headache for your business and future growth strategy, regardless of the fact that the seller may have seemingly been operating from the premises without issue.

Legal advice for buyers of veterinary practices

Seeking early advice from a business solicitor with specialist knowledge of the veterinary industry will expedite the purchase process and help you avoid costly mistakes. S/he will:

  • advise on the most tax efficient way to structure your deal
  • manage the due diligence process, ie, investigate both the health of the target business and the title and condition of the premises from which the practice operates
  • review and advise on the terms of the lease
  • negotiate the sale contract on your behalf, with the inclusion of appropriate warranties and indemnities to further protect your position post sale.

Make a free enquiry

At Truelegal we act only for business buyers and sellers and have particular experience of working with vet businesses nationwide.

The sooner we become involved in the process of helping you to buy your veterinary business, the better understanding you will have of the associated risk and the more likely it is that your purchase will be successful.

Please either call us now on 01392 879414 or complete our Free Online Enquiry and we will soon be in touch.

Our full contact details can be found on our Contact Us page.

We look forward to hearing from you.

 

2018-06-15T15:50:17+01:00Veterinary practices|

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Exeter Office

Truelegal Solicitors 76 Fore Street, Topsham Exeter, Devon, EX3 0HQ

Tel: 01392 879414