Legal Due Diligence When Buying a Dental Practice: A Buyer’s Checklist
This checklist sets out the key legal due diligence areas a buyer should review, including corporate and financial documents, commercial contracts, NHS arrangements, CQC compliance, property rights, employment and associate agreements, commercial earnings quality, common red flags and how findings should translate into warranties, indemnities and price protections.
Why is legal due diligence important when buying a dental practice?
A dental practice is not an ordinary business purchase
Buying a dental practice is not the same as acquiring an ordinary business. A practice is a regulated healthcare operation whose value is closely connected to its premises, clinical team, patient base, regulatory position and NHS or private income streams.
Legal due diligence is the process of investigating those areas before you become legally committed to the acquisition. Its purpose is not simply to identify missing paperwork. It should help you establish whether the practice can continue operating lawfully and commercially after completion, and whether the agreed price reflects the business you are actually acquiring.
A practice may look profitable while carrying less obvious risks. The lease may be close to expiry, key associates may not have written agreements, equipment may be financed, CQC records may need updating, or the goodwill may depend heavily on the seller remaining involved.
These issues do not always mean that the acquisition should be abandoned. However, they may justify a price adjustment, a condition that must be satisfied before completion, a retention, an indemnity or additional protection in the purchase agreement.
For the wider transaction picture, including how due diligence findings interact with CQC registration, lease or freehold issues, goodwill protection and completion timing, see JLN’s main guide to Buying or Selling a Dental Practice.
This checklist is not exhaustive. The correct scope will depend on the structure of the transaction, the funding arrangements, the NHS/private income mix, the property position and any known risks identified at heads of terms stage.
What is legal due diligence?
Due diligence tests the assumptions behind the deal
Legal due diligence is a structured review of the business, assets, liabilities, contracts and compliance history of the practice you are proposing to buy.
The scope will depend partly on whether the transaction is structured as a share purchase or an asset purchase.
In a share purchase, you acquire the company that owns the practice. The company retains its existing contracts, assets and liabilities, including liabilities that may not be immediately apparent from the accounts.
In an asset purchase, you acquire specified assets, such as goodwill, equipment, contracts and intellectual property. This may give you more control over what is included, but contracts, premises rights and other arrangements may need to be transferred separately.
Due diligence should help you answer four key questions:
• Can the practice continue operating after completion? The purchase agreement alone does not give you the necessary regulatory approvals, property rights or NHS arrangements. These workstreams must be aligned with the transaction timetable.
• Does the seller own everything being sold? Equipment, software, domain names and telephone numbers may be leased, financed or registered in another person’s name. Ownership and transferability should be confirmed.
• Are the earnings sustainable? Headline turnover does not show whether income depends on the seller, a particular associate, an NHS arrangement or a patient-plan structure that may not continue.
• What liabilities could you inherit? These may include employment claims, tax exposures, regulatory concerns, lease liabilities, complaints and contractual disputes.
Due diligence is therefore not a box-ticking exercise. It tests the assumptions on which your valuation and purchase offer are based.
What documents should you ask the seller for?
A dental-specific request list is essential
Your solicitor will usually raise a detailed due diligence questionnaire and request supporting documents through a secure data room.
A generic business questionnaire is unlikely to be sufficient. Dental transactions require specific enquiries concerning CQC compliance, clinical governance, associates, NHS arrangements, patient plans, equipment and the practice premises.
Sellers can also use this type of checklist before going to market. Preparing key documents early can reduce delays, improve buyer confidence and make it easier to resist avoidable price reductions.
Corporate and financial documents
For a company purchase, you should review the company’s constitutional documents, statutory registers, shareholder arrangements, charges and major board or shareholder decisions.
Financial information will normally include annual accounts, management accounts, liabilities and tax records. Although your accountant will lead on financial due diligence, your legal advisers should check that the contracts and workforce arrangements support the figures presented.
For example, the accounts may describe clinicians as self-employed associates, but their actual working practices could create employment or worker-status risks.
Commercial contracts
You should ask for all contracts that are important to the operation or value of the practice, including agreements with associates, hygienists, patient-plan providers, suppliers, software providers, IT providers and equipment finance providers.
Associate and hygienist agreements should clarify notice periods, remuneration, laboratory costs, responsibility for complaints and whether there are appropriate restrictive covenants.
Missing or unsigned agreements can make it difficult to assess whether key clinicians will remain.
Patient-plan provider and supplier contracts should be checked for termination rights, minimum terms, pricing provisions and change-of-control restrictions. Software licences may be non-transferable, and equipment may be leased or subject to finance. The seller cannot transfer ownership of equipment it does not own.
What NHS documents should be reviewed?
NHS arrangements require early specialist attention
If the practice provides NHS dentistry, you should request the full General Dental Services contract or Personal Dental Services agreement, together with all variations and correspondence with the relevant commissioner.
You should review:
• Contract value and activity requirements. The buyer needs to understand the level of NHS activity expected and whether the practice has historically met those requirements. Underperformance may affect valuation and risk allocation.
• Historic performance and clawback risk. Past performance can reveal whether income is sustainable or whether future deductions, repayments or remedial action may arise. The accounts alone may not show the full contractual position.
• Breach, remedial or warning correspondence. Any formal correspondence with the commissioner should be reviewed carefully. It may affect the transaction structure, lender confidence and the protections required in the purchase agreement.
An NHS dental contract should not be treated like an ordinary supplier contract that can simply be assigned to the buyer. The appropriate structure, commissioner requirements, performance position and any consent or approval process should be considered at an early stage.
What regulatory checks should a buyer make?
CQC registration does not simply pass with the business
CQC registration is linked to the registered provider, regulated activities and location. You should not assume that the seller’s registration will simply pass to you when the business changes hands.
The regulatory process will depend on the acquisition structure and whether you are already a registered provider. You may need to apply for registration, add a new location or amend existing registration details.
CQC planning should begin when heads of terms are being negotiated, rather than being left until the purchase agreement is almost complete. Delay can affect the completion date and may create difficulties with lenders, landlords, patients and staff.
Where the legal provider changes, the incoming and outgoing provider steps must be coordinated, and the required CQC applications, notifications and supporting documents should be addressed early in the transaction timetable.
Registered manager
You should establish whether the existing registered manager will remain after completion.
If the registered manager is leaving, you will need to identify a suitable replacement and understand what applications or notifications are required. This may affect both the regulatory timetable and your ability to operate the practice smoothly after completion.
Complaints, inspections and safeguarding
The due diligence process should investigate inspection reports, action plans, safeguarding records, complaints, significant events, infection-control records and governance policies.
A clean inspection rating should not end the enquiry. You should establish whether any concerns have arisen since the inspection and whether the practice’s written policies are being followed in practice.
Poor regulatory history does not automatically prevent an acquisition. However, it may affect valuation, lender confidence and the protections required in the purchase agreement.
What property due diligence is required?
The practice must have secure premises rights
The premises are often fundamental to the value of a dental practice. Patients know the location, staff work around it and specialist equipment may be fixed into the building.
You should not complete the acquisition unless you have a legally effective right to occupy and use the premises from completion.
If the practice is leasehold, your solicitor should review the remaining lease term, rent and rent-review provisions, repairing obligations, service charges, break rights, security of tenure, permitted use, assignment restrictions and restrictions affecting alterations, equipment or signage.
A short lease can affect the value of the practice, lender approval and your ability to sell the business in the future. You may need a lease extension or a new lease before proceeding.
The lease may also require the landlord’s formal consent to an assignment. Landlord consent can take longer than expected, so the process should begin early and should not be treated as a simple administrative step.
You should also confirm that the premises can lawfully be used as a dental practice and that significant alterations have the necessary planning, building regulations and landlord approvals.
For a fuller discussion of leasehold, freehold, planning and landlord consent issues, see our article on property issues that can make or break a dental practice sale.
What employment due diligence is needed?
Staff and associate arrangements can affect value and continuity
The clinical and administrative team may represent a significant part of the practice’s goodwill. You should understand who works at the practice, their legal status and whether key people are likely to remain.
TUPE may apply where a dental practice is acquired by way of an asset purchase or other business transfer. Where it applies, employees will usually transfer to the buyer on their existing terms with continuity of employment preserved, but the position should be assessed against the structure and facts of the transaction.
You should obtain details of employment contracts, pay, holiday and sickness records, pension arrangements, disciplinary or grievance matters, maternity and family leave, existing or threatened claims, and any proposed workforce changes.
The parties may also have information and consultation obligations. These should be addressed early and handled carefully to maintain staff confidence and protect confidentiality.
Associate agreements should be reviewed for notice periods, remuneration, professional obligations, complaint responsibility and restrictive covenants. You should also consider employment-status risk. Calling someone self-employed does not necessarily make them self-employed in law, and the actual working relationship may create worker or employee rights.
What commercial issues should be investigated?
The buyer needs to test the quality of earnings
Commercial due diligence should establish whether the practice can continue generating the income on which the agreed valuation is based.
Patient-plan arrangements, cancellation rates and recurring income should be examined carefully. A stated number of plan patients may not represent reliable income if many are inactive or attend primarily because of the seller’s personal reputation.
Where goodwill depends heavily on one dentist, a handover period or ongoing associate arrangement may help preserve patient confidence. The purchase agreement should also address the transfer of the practice name, website, telephone numbers, domain names and social-media accounts.
You should also establish which systems and assets are essential to the practice and whether they can transfer. Software licences may be non-transferable. Supplier contracts may contain termination charges or automatic renewal provisions. Equipment may be leased, financed or nearing replacement.
These matters can affect both the purchase price and your working-capital requirements after completion.
What are the most common red flags?
Red flags often affect price, timing or contract protection
Common issues identified during dental practice due diligence include:
• Missing associate agreements. Without signed terms, there may be uncertainty about whether key clinicians will remain, how quickly they can leave and whether they can compete nearby.
• A lease close to expiry. A short or insecure lease can undermine goodwill, affect funding and make a future sale more difficult.
• No effective restrictive covenants. If the seller or key clinicians can immediately establish a competing practice nearby, the goodwill you are buying may be vulnerable.
• Poor regulatory history. Repeated complaints, incomplete safeguarding records or unresolved CQC concerns may require investment and management attention.
• Goodwill dependent on the seller. If patients attend primarily because of one dentist, turnover may fall when that person leaves.
• Unclear NHS arrangements. NHS income should not be assumed to continue merely because it appears in the accounts. The contractual structure and performance history must be reviewed.
A red flag is not always a reason to withdraw. It may instead require the issue to be resolved before completion or reflected in the price and contractual documents.
How can due diligence affect the deal terms?
Findings should feed directly into the purchase agreement
Due diligence findings can lead to several different protections.
Warranties are contractual statements made by the seller about the practice. They may cover accounts, contracts, employees, regulatory compliance, property and disputes. They encourage disclosure and may provide a claim if a statement is untrue, but they are not a substitute for proper investigation.
An indemnity is a promise by the seller to meet a particular identified liability. It may be appropriate where due diligence reveals a known employment, tax, contractual or regulatory risk.
Part of the purchase price may be retained for an agreed period to cover a specific risk. Alternatively, the buyer may seek a price reduction where the practice requires unexpected investment or its sustainable income is lower than originally presented.
An earn-out makes part of the price dependent on future performance. It may be useful where goodwill depends on patient retention or the seller’s continued involvement, but it can lead to disputes unless the calculation, information rights and management of the practice are clearly documented.
When should legal due diligence begin?
The earlier issues are identified, the easier they are to manage
Due diligence should begin before you become unconditionally committed and, ideally, before detailed heads of terms are finalised.
Early advice can identify matters that affect the choice between an asset or share purchase, the NHS contractual structure, CQC applications, property arrangements, treatment of employees and associates, lender requirements and whether part of the price should be deferred.
There is no universal completion period for a dental practice acquisition. The timetable will depend on the quality of the seller’s records, regulatory processes, property arrangements, financing and the involvement of third parties.
You should therefore be cautious about agreeing a fixed completion date before these dependencies have been considered.
How JLN can help with your dental practice acquisition
We coordinate the legal workstreams that matter
A dental practice acquisition brings together corporate, regulatory, property, employment and commercial issues. These workstreams must be coordinated so that you can take control without interrupting patient care or inheriting avoidable liabilities.
The Jonathan Lea Network can assist with reviewing and negotiating heads of terms, advising on transaction structure, carrying out sector-specific legal due diligence, reviewing NHS and CQC arrangements, advising on TUPE, reviewing the practice lease, working with lenders, negotiating warranties and indemnities, and drafting the purchase agreement.
If you are reviewing heads of terms or a seller’s data room, JLN can carry out sector-specific legal due diligence and help negotiate warranties, indemnities, retentions and completion conditions. LINK TO JLN dental practice acquisitions service page.
For further information about the broader acquisition process, see JLN’s guides to Buying or Selling a Dental Practice, Legal Due Diligence for Buying a Business and Buying a Business.
Speak to JLN before committing to the purchase
Good due diligence can prevent expensive surprises
The most expensive problems in a dental practice acquisition are often those discovered after the price has been agreed, lender costs have been incurred or an unrealistic completion date has been promised.
Early legal due diligence allows you to assess the practice from an informed position, identify issues before they become your responsibility and negotiate appropriate protections.
If you are buying your first dental practice or expanding an existing group, contact The Jonathan Lea Network at an early stage. Our team can help you understand the regulatory, property, employment and commercial risks and structure the acquisition so that it is legally robust and commercially workable.
How can Jonathan Lea Limited help?
We provide most enquiries with an indicative scope of work and fee estimate, based on the information you share. We aim to respond within one working day.
In the same email, you will be invited to arrange a 20-minute complimentary, no-obligation video consultation, should the proposed scope of work and fee estimate be of interest. This initial discussion is designed to help us better understand your requirements, refine the scope of work and ensure our approach is fully aligned with your objectives.Following the call, we will email you a definitive, formal fee estimate for you to consider and approve.
Where you would prefer to receive initial advice and guidance from the outset, or where a short introductory call would not be the most appropriate starting point, we may instead recommend a 2.5-hour fixed-fee appointment, starting from £750 + VAT. This enables us to review the information you provide, discuss your situation with you and provide considered, tailored advice at an early stage.
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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.