Put a stop to dramas and pitfalls

Put a stop to dramas and pitfalls: The Probe

1st September 2017 | Knowledge Centre, Press Cuttings

Put a stop to dramas and pitfalls

 

All too often we hear stories about a ‘nightmare’ sale – as I’m sure many of you have – and I can’t help but wonder where it all went wrong. Problems can and do occur, of course; that’s the nature of the practice sales and acquisitions market. What I mean is how, in instances where it all just seems to go spectacularly wrong, did it reach the point of no return? In my experience, most of the dramas and pitfalls that can occur during a sale can usually be avoided – it’s a matter of identifying the ‘bump in the path’ before it turns into a fully-fledged problem. To help put a stop to these problems and prevent the risk of an aborted sale, here’s what you need to know.

 The property

If a buyer is purchasing a freehold it’s natural to expect that they’ll want a structural and drainage survey before they commit to the exchange. If there’s a problem with the building and it shows up during the survey, the sale is not likely to go through – simple. And if it does on the agreement that the vendor will pay for the work to be done, you can almost certainly guarantee that costs presented by the structural survey will be inordinate compared to those from a local builder. The moral of the story is if you know you have a problem don’t wait for it to be brought up during the transaction, deal with it beforehand, because if you don’t it could end up costing you more money later on down the line.

The other aspect to give thought to is the value of your practice. You see it happen time and time again where vendors either have no idea what their practice is worth or an unrealistic expectation, which effectively skews the way in which they view potential offers during the bidding process. It also doesn’t help that the valuer whom the lending bank appoints to carry out the appraisal is rarely local. In my experience, this can affect the valuation price by as much as 20 per cent. For that reason, I would always advise seeking the opinion of a local RICS registered valuer, who can ensure you have an accurate opinion of the property’s true value.

The lease

As for leasehold properties, it can seem like a never-ending series of possible disasters, but two of the main pitfalls to watch out for that can result in delays or an aborted sale are:

  • Lease length: Your purchaser will require a lease of at least 10 years at the point of the transaction completion, preferably even 15, so if your contract is coming to an end, you will need to approach the situation in one of two ways. If you think that your landlord is likely to ask for a lease premium when you sell, it might be worth securing a longer lease beforehand. Otherwise, find your purchaser first then negotiate a suitable lease.
  • Landlord and Tenant Act 1954: Understandably, purchasers will need reassurance that the landlord will not ask them to leave at the end of the lease term (or make unreasonable demands), so make sure that the lease sits inside the Landlord and Tenants Act (1954).

What can happen if you have an NHS contract?

With an NHS practice, the worst thing to do would be to forewarn NHS England that you are intending to put your practice on the market. Indeed, unless you want to risk reducing the value of your NHS goodwill to nothing, it’s best to keep mum until the time comes.

You must also make sure that you keep on top of your UDA targets throughout the sale after a deal is agreed rather than relying on catching up in the final quarter, as underperformance can make purchasers very nervous about lending. Equally, if your buyer doesn’t feel confident, there is a good chance they will either pull out of the deal or demand a price reduction/retention. The easiest way to prevent this from happening is to ensure that you consistently perform pro-rata to the year.

Cash buyers and proof of finance

When a potential purchaser presents themselves as a ‘cash buyer’ what they often mean is that they have the cash to buy the practice if they wanted to from their own resources, but they will use a bank to finance most of the transaction. As such, it is always wise to approach this option with caution.

Other than that, don’t get drawn into believing that if a buyer is walking around with a proof of finance at a value over and above the purchase price, they will definitely get the funding agreed, because this simply isn’t the case. Banks consider each candidate on individual merit, so don’t rule buyers out during the bidding process based on this misconception.

 Get the right support

At Dental Elite we firmly believe that a successful sale can be achieved each and every time, as long as the vendor is properly informed and has the right help and support from their sales agency and legal team. To steer clear of your ‘nightmare’ sale, then, take action today.