Selling a care home can be a complex process and there  are multiple legal, financial, and operational aspects that need careful consideration and management.  We touch on some key considerations below.

1. Due Diligence - Buyers will typically start by conducting a thorough due diligence process on a vast number of topics including key areas:

• Confidentiality - before and during due diligence and negotiations, confidentiality agreements (non-disclosure agreements) should be signed to protect sensitive business information, client data, and financials.

• Finances - reviewing the financial records of the care home. This may involve examining profit and loss statements, tax returns, operational costs, and outstanding debts.
• Operations - reviewing operational aspects, including staffing levels/performance, licenses, client contracts, supplier agreements, and regulatory compliance.
• Legal Compliance: reviewing the care home's compliance must comply with all relevant health and safety, employment, and care standards regulation including CQC (Care Quality Commission) ratings in the UK. If there are any pending inspections, fines, or breaches, this could complicate the sale.

It is common for the seller to securely store all information provided to the buyer in a central data room (which your legal advisor can assist with).

2. Ownership Structure

• Asset Sale vs. Share Sale - which one?
  • Asset Sale: Typically the Buyer purchases the assets of the care home (the business, equipment, contracts, etc.) but not the liabilities. This will typically include all assets used in running the care home.
  • Share Sale: The buyer acquires the shares in the company that owns and operates the care home. In this case, liabilities and debts may be inherited along with the assets.
• Real Estate Considerations: If the care home is owned as part of a larger property portfolio, the sale may involve a complex negotiation regarding ownership, leases, or property rights.

3. Contracts and Agreements

• Staff Contracts: The Buyer may wish to review employment terms particularly regarding pensions, redundancies, and employee benefits. Any ongoing staff disputes or union agreements should be disclosed.
• Client Agreements: The sale must consider the continuation of care for existing residents, including their care plans and agreements. Transition clauses might be necessary to ensure continuity of service.
• Supplier and Service Contracts: Any long-term agreements with suppliers (food, medical supplies, utilities, etc.) should be reviewed, in particular, whether these can be transferred to the new owner or whether new contracts or consents are required.

4. Intellectual Property

• The care home might have proprietary systems, branding, software, or intellectual property related to its operations. These assets need to be clearly defined and are typically transferred as part of the sale.

5. Tax Considerations

• Capital Gains Tax: If the seller is selling shares or assets, there may be tax implications such as capital gains tax. The transaction structure (asset or share sale) will affect the tax liability.
• VAT: The sale of a business or assets may be subject to VAT. Exemptions can exist for certain types of healthcare services, but this needs to be reviewed by tax professionals.
• Stamp Duty: In the UK stamp duty may apply to the transfer of property if real estate is involved or to the transfer of shares (if a company sale).

6. Financing and Security

• Funding Arrangements: If the buyer is financing the purchase through a loan or other means, the lender may require security over assets of the target company being sold. This could impact the structure of the sale or require additional negotiations regarding liabilities.
• Existing security: The target company or its assets (which includes the business) may be  subject to prior charges.  As part of negotiations, the seller may need to arrange for these to be released before the sale.

7. Post-Sale Transition

• Management Transition: There may be provisions for transitioning management and operations. This could involve the key seller contact staying on for a period to facilitate the changeover.
• Non-Compete Clauses: Often, the seller will be required to sign up to non-compete provisions preventing them from opening or operating a competing care home in the same region for a certain period.
• Exit strategy:  The seller may need to structure the deal in a way that aligns with their personal and financial exit strategy, especially if they are retiring or moving into another business

8. Disclosure 

• The seller will usually give certain warranties regarding the business in the sale agreement (see below). For example, that there are no outstanding legal disputes, tax liabilities, or violations of regulatory standards. The seller could be liable for damages if there is a  breach of warranty.  Therefore, it is important for the seller to go through a thorough disclosure process with their advisors against any warranties that may be incorrect or untrue.

9. Sale Agreement

• Terms and Conditions: The sale agreement will outline the specifics of the deal, including the price, payment structure, and warranties. This includes the handling of any liabilities, transition procedures, and the allocation of any purchase price between assets, goodwill, and other factors.
• Conditions Precedent: The agreement may outline conditions that must be met before the sale can be finalised (e.g. regulatory approvals, financing, etc.).

10. Employee Considerations

• TUPE (Transfer of Undertakings (Protection of Employment)): If the business is sold (as opposed to the company), the employees typically have the right to transfer to the new owner under the same terms and conditions. TUPE regulations protect employees’ rights during such transitions and the seller will need to manage any consultation process.
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Key takeaways

Selling a care home involves multiple legal, financial, and operational aspects that need careful consideration and management. Engaging a team of legal advisors, financial professionals, and regulatory experts at the appropriate time in the process is crucial to ensure a smooth and legally compliant transaction - if you're thinking about this, talk to our Corporate team.