By Leo Rossiter, Partner at Myerson Solicitors LLP (www.myerson.co.uk)
When considering whether to buy a care home business, while you will no doubt have taken account of apparent profitability and potential, it is vital that you establish, as far as possible, likely costs (e.g. legal fees, due diligence costs, post completion costs (tax, investment)) during and after the buying process as well as having a realistic idea of the timescales involved.
It may sound obvious but you must always check the numbers carefully. Has the bottom line been enhanced by underinvestment? This will go hand in hand with the due diligence exercise but what will the business require going forward, whether it be property repairs/renovation (whether in terms of practicalities or statutory requirements) or investment in staff and facilities? You need to establish what needs to be spent after completion of the purchase in order to sustain and/or enhance profitability. This will no doubt form part of your business plan which, where funding is being obtained, your lender will want to look at.
If you need to obtain finance for your deal, consider the additional steps and costs that will be involved. An investor or lender will likely have specific requirements in terms of structure (creation and/or involvement of group companies), documentation (occupational leases) and/or due diligence (additional searches/checks) that may affect timing and expense.
In most cases, a care home will be owned and operated by a limited company rather than an individual. Therefore, usually one of the initial critical decisions to be made is whether to proceed by way of an asset or share purchase. Advice should be sought on a case-by-case basis as there are a number of things to consider in terms of, for example, tax or financial implications. Essentially, with an asset purchase, you are buying those “items” (e.g. the property, the employees etc) which you consider to be vital to the continued running of the business. With a share purchase, you take on all assets and liabilities of the owning company.
While the documents dealing with the specific transaction are important, these will be negotiated in line with the due diligence exercise. This process, like other aspects, takes time and costs money. Where possible, obtain an indication as to costs up front.
Existing and potential future liabilities need to be considered whether in terms of property repairs, tax considerations, disputes etc.
If development of the property is required (e.g. to extend the property), you must obtain advice from a planning perspective and your solicitor needs to advice on any title issues that may affect any intended development and/or the required use of the property (e.g. and covenants or restrictions affecting the property).
If the property interest you are taking or inheriting is leasehold, your solicitor will need to advise on any consents that may be required (in terms of the transaction (so that the lease may be transferred to you or the lease contains “change of control” restrictions) or your future plans (e.g. consent to carry out alterations) and any obligations and/or restrictions in the lease that may affect your plans. Is the length of the lease sufficient? Do you have rights to renew the lease at the end of the term? Are you inheriting costly repair obligations?
Consider your obligations as an employer. The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) will apply in the case of an asset sale and the implications of this needs careful consideration.
The registration process, if nothing else, takes time. This is most significant if the transaction is an asset purchase but the requirements must be checked and considered as this is a legal requirement.
For an asset purchase, as part of the deal, you will be buying the property and this will attract SDLT. Your solicitor should be able to provide you with a figure for this but, dependent on price, it is likely to be a significant amount and can often be overlooked until later in the transaction.
Local Authority funding
Although not always relevant, if some or all the residents benefit from local authority funding then the arrangements need to be considered and reviewed to ensure continued compliance. Any relevant contracts in place are likely to limit or control a change in ownership even in the case of a share purchase.