Legal Basics of Buying a Care Home: Key Points to Consider for First Time Buyers

By Thomas Golding, Partner and Joint Head of Care at Freeths LLP (www.freeths.co.uk)

Buying a care home in the UK is a unique transaction. Not only is legal advice required on the corporate, real estate and employment aspects, but expert knowledge on funding options and practical experience in the health and social care sector is so important.

If you’re considering buying or investing in a care home, the Care Team at Freeths LLP (one of the UK’s leading and most prolific law firms in the Care sector) have put together a summary of the legal process for potential first-time buyers to consider.

1. Consider finance options for your purchase
Seeking funding for your purchase, either from a bank or other investment funder, can mean additional steps when buying your care home. Each funder will have different requirements that you might need to comply with, such as discharging any existing security over the company/property, providing personal (or cross-company) guarantees, and completing a Certificate of Title on the real estate asset itself. You might also need to factor in the time required for any additional searches required by the funder, such as mining, fire, technical or environmental reports. Where an investment funder is involved, this could have a significant impact on the structure of the transaction and may involve an opco/propco structure (whereby an intra-group lease is put in place) or a requirement for the investor to share in the equity of your business.

2. Decide on how to structure the transaction: asset or share sale?
Typically, care homes are operated by their owners through limited companies. As such, your purchase might be undertaken through a share purchase or an asset purchase. In a share purchase, the buyer assumes the assets, liabilities and obligations of the entire corporate entity, whereas for an asset purchase, the buyer might purchase only the required asset (such as the property from which the care is provided together with the operational assets and employees) from the seller. Whilst the distinction may appear small, the tax, financial and regulatory implications (among other things) can differ greatly.

3. Ensure time is allowed for the due diligence
Undertaking due diligence on corporate, tax, finance, operational or real estate aspects of your purchase is a key part of the legal process. However, when buying a care home, due diligence might also include anything from the home’s Care Quality Commission (CQC) reports, looking for any litigation or investigations brought against the home to full review of the employment or supplier contracts.

4. Register with the CQC
If you have not already done so, you/the legal entity operating the home will need to be registered with the CQC before you can take over the care home. This can be a lengthy process, so should be factored into the process of buying a care home. The process of registration will be different depending on the structure of your purchase; if you are buying the shares of the seller’s operating company, the care home will already be registered with the CQC as a location from where care is provided – and the company you are acquiring will be the registered provider. As a result, the process can be quicker and more straightforward than applying for a brand new registration or adding the care home to your existing registration.

5. Watch out for local authority funding

Often, a care home might have residents who are funded by the local authority. As a buyer, you will need to ensure compliance with any contracts in place with the relevant local authority. ‘Change of control’ and ‘non-assignment’ clauses (among other provisions) are very likely to be present within these contracts, and can require consultation with your legal advisors to understand the implications of these arrangements before your purchase completes.

6. Check your employer obligations
Particularly relevant if your purchase is structured as an asset sale, you may have some extra regulations to comply with. Where the transaction is structured as an asset purchase, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) will apply, to safeguard the care home’s existing staff.

As legal advisors to the UK’s major care operators, providers and developers, the Care team at Freeths LLP are experts in helping clients buy and sell care homes. Get in touch with Thomas Golding (Joint Head of the Care Team) for further information or a no-obligation consultation.

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