Leasehold or Freehold? Property Issues That Can Make or Break a Dental Practice Sale

This guide explains the key property issues in a dental practice sale, including lease assignment and landlord consent, rent deposits and guarantees, lease terms to review, freehold acquisition options, planning use, unauthorised alterations, accessibility duties, lender requirements and the common problems that delay completion.

Why does property matter so much in a dental practice sale?

The premises can affect value, funding and completion

When buying or selling a dental practice, attention often centres on turnover, patient numbers, equipment and the agreed price. However, the property from which the practice operates can be just as important to the success of the transaction.

Patients associate the practice with its location. Staff, suppliers and referral relationships are organised around the premises, while specialist dental equipment may be physically installed within the building. The practice’s regulatory position may also be connected to that location.

If the buyer cannot occupy and lawfully use the premises immediately after completion, the value of the business may be seriously undermined. A profitable practice can become difficult to finance, or even impossible to acquire, if its lease cannot be assigned, its permitted use is unsuitable or alterations were carried out without consent.

Property due diligence should therefore begin early, not once the purchase agreement is substantially negotiated or a completion date has already been promised.

For the wider transaction context, including how property rights interact with CQC registration, goodwill, due diligence and the sale agreement, see JLN’s main guide to Buying or Selling a Dental Practice.

How can property problems affect the value of goodwill?

Goodwill is often tied to the location

A substantial part of a dental practice’s value is often its goodwill. In simple terms, goodwill is the reputation, patient relationships and recurring business that make the practice worth more than its physical assets alone.

That goodwill may be strongly connected to the premises. A practice that has operated from the same location for many years may benefit from local recognition, convenient transport links, established signage and a patient base that expects treatment at that address.

Relocation is rarely straightforward. It may involve new planning, regulatory and fit-out requirements, as well as patient communications and disruption to clinical services.

Property problems can affect:

• Goodwill and valuation. Patients may be less likely to remain if the practice has to move shortly after completion. A buyer may therefore challenge the valuation if the right to stay at the premises is uncertain or short term.

• Funding. A lender will usually want the property arrangements to provide a stable base for the practice. A short lease, defective title or onerous repairing obligations may affect whether finance is available.

• Regulatory continuity. Regulatory applications must reflect the location from which regulated activities will be provided. A late change to the premises can therefore affect the wider acquisition timetable.

The key question is not simply whether the practice is leasehold or freehold. It is whether the buyer will receive secure, legally effective and commercially workable rights to use the premises.

What happens when a dental practice is leasehold?

The buyer cannot assume it can simply take over the lease

Many dental practices operate from leasehold premises under a lease granted by a landlord.

The lease should be reviewed before the buyer becomes legally committed. A buyer should not assume that it can simply take over the seller’s occupation when the business sale completes.

An assignment is the legal transfer of an existing lease from the current tenant to a new tenant. Following an assignment, the buyer normally takes over the tenant’s obligations under the lease. These may include paying rent and service charges, repairing the premises and complying with restrictions affecting use, alterations and signage.

The lease must be checked to establish whether assignment is permitted and on what conditions. Some leases prohibit assignment, while others allow it only with the landlord’s prior written consent.

What is a licence to assign?

Landlord consent is often a key transaction dependency

Where landlord consent is required, it is normally documented in a licence to assign.

The landlord may ask for information about the buyer’s financial standing, experience and proposed business. It may also request accounts, references, evidence of funding or a business plan.

A licence to assign should not be treated as an administrative formality. The landlord is a third party to the practice sale and is not automatically bound by the timetable agreed between the buyer and seller.

Where the lease permits assignment with consent not to be unreasonably withheld, statutory duties may apply to the landlord’s decision-making process. However, the lease wording and the circumstances must be reviewed carefully.

Completing an assignment without the required consent may create registration difficulties and expose the tenant to enforcement action.

What security might a landlord request?

Rent deposits and guarantees can affect the deal

A landlord may agree to the assignment only if additional security is provided.

This may include:

• A rent deposit. The buyer pays an agreed amount as security for its lease obligations. The terms should be set out in a rent deposit deed, including when the deposit can be used and when it must be returned.

• A personal or company guarantee. A director, parent company or other third party may guarantee the buyer’s obligations. The guarantor could become liable if the buyer defaults.

• An authorised guarantee agreement. The seller may be required to guarantee the buyer’s performance after the assignment. This can leave the seller with continuing exposure after the dental practice sale.

The heads of terms should identify who will be responsible for satisfying the landlord’s requirements and whether any requested security could affect the transaction.

What lease terms should a dental practice buyer review?

The lease must support continued operation and future saleability

A lease must do more than allow the buyer to enter the property. It should support the continued operation, funding and future sale of the practice.

The remaining lease term is often critical. A lease that is close to expiry may create uncertainty about whether the practice can remain at the premises. It may also make the business more difficult to finance or sell. The buyer may require an extension or a new lease before proceeding.

Rent and rent-review provisions should also be checked. The buyer should identify when the next review will take place and whether the rent could rise materially after completion. An imminent rent review should be considered alongside the practice valuation and financial projections.

Repairing obligations can create significant cost. A full repairing and insuring lease can make the tenant responsible for substantial repairs, potentially including structural elements. If the property is already in poor condition, the buyer may inherit a significant repair or dilapidations liability.

Security of tenure should also be reviewed. Where the Landlord and Tenant Act 1954 applies and has not been excluded, a business tenant will generally have statutory rights to remain in occupation and request a new tenancy when the contractual term ends. Those rights can be excluded through a process known as contracting out. A buyer should confirm whether the lease benefits from security of tenure and understand how that affects the long-term stability of the practice.

What are the options where the practice is freehold?

The property and business can be dealt with in different ways

Where the seller owns the freehold, the property and the dental business can be dealt with in different ways.

The buyer may acquire both the practice and the property. This can provide greater security because the buyer is not dependent on a landlord for consent to assignment or lease renewal. However, planning, lender, regulatory and title restrictions may still apply.

Buying the freehold will increase the amount of funding required and involve separate property due diligence. This will normally include searches, title review, valuation and a building survey. The title review should confirm adequate rights of access, parking, drainage and utilities. It should also identify restrictive covenants, third-party rights and mortgages that could affect continued dental use.

The transaction may give rise to Stamp Duty Land Tax in England or Land Transaction Tax in Wales. Specialist tax advice should be obtained.

Alternatively, a seller may wish to sell the dental business while keeping the property as an investment. In that case, the seller will normally grant a new lease to the buyer. This can reduce the buyer’s immediate funding requirement and provide the seller with rental income, but it also creates a continuing legal relationship.

The lease should deal clearly with term, renewal rights, rent, repairs and future assignment rights. Overly restrictive assignment terms may reduce the future marketability of the business.

The business purchase and the new lease should usually complete at the same time.

Does the property have the correct planning use?

Planning use and lease use are separate issues

Planning use is separate from the permitted use under the lease.

A lease may allow dental services while the planning position does not, or vice versa. Both must be checked.

In England, many health service uses may fall within Class E, but the planning history, any historic permissions and any conditions or restrictions should still be checked before the buyer relies on the existing use. The fact that a property currently operates as a dental surgery does not conclusively prove that its use is lawful.

In Wales, planning use classes differ from the post-2020 English regime. Dental surgery use should be checked against the planning history, any permissions or conditions, and the relevant Welsh planning framework before the parties rely on the existing use.

The lease must also contain a permitted-use clause broad enough to cover the practice’s current and planned activities. A narrowly drafted clause may not accommodate future services such as orthodontics, cosmetic treatments or facial aesthetics. Expansion may require landlord consent, planning advice or regulatory changes.

Planning use should be checked from the planning history and relevant local authority records, rather than assumed from the fact that the premises currently operate as a dental practice.

What if alterations were made without consent?

Dental fit-out works often need formal approval

Dental premises often require substantial works, including surgery partitions, specialist plumbing, ventilation systems, radiography rooms and air-conditioning equipment.

The buyer should establish whether landlord consent was required, whether planning and building approvals were obtained, and whether reinstatement obligations may arise at the end of the lease.

The lease may require prior written consent for structural or non-structural works. A formal licence for alterations may have been needed. Relevant permissions, certificates and technical approvals should be available for review.

Unauthorised alterations can delay the transaction. The landlord may require a retrospective licence, professional reports, remedial works or payment of its legal and surveyor’s costs before consenting to the assignment.

Informal knowledge that works were carried out is not necessarily the same as formal consent.

What accessibility issues should be checked?

Accessibility duties can affect premises planning

Dental practices should consider accessibility both as service providers and as employers.

In relation to disabled patients and other service users, the Equality Act 2010 imposes a duty to make reasonable adjustments. This includes thinking in advance about barriers disabled people may face, rather than waiting for a particular patient to request assistance.

Separate duties may arise in relation to disabled employees and job applicants.

Property due diligence should consider step-free access, internal circulation, door widths, accessible toilet facilities, reception and waiting-room design, signage and physical restrictions affecting future adjustments.

An older or listed building is not automatically exempt from reasonable-adjustments duties. Its design, planning status, lease terms, practicality and cost may still be relevant when assessing what adjustments are reasonable.

What will a lender normally require?

An offer of finance is not the same as readiness to complete

A lender will usually assess whether the property provides a stable base for the practice and supports the value of its security.

Requirements vary, but commonly include a satisfactory lease term, acceptable assignment and charging provisions, an appropriate permitted use, and no serious title or repair defects.

The lender may require searches, a valuation, a survey and clarification of significant concerns before funds are released.

An offer of finance does not necessarily mean that the lender is ready to release funds. Its property conditions must still be satisfied.

Completion should not be promised until landlord consent, lender property conditions and any required lease documents are realistically timetabled.

What property problems commonly delay a sale?

Most property delays are avoidable if identified early

Common issues include:

• A short lease. A lease approaching expiry may not provide sufficient security for the buyer or lender. Negotiating an extension or replacement lease can add time and cost.

• A defective lease. The lease may prohibit assignment, describe the premises incorrectly or contain a permitted use that does not cover the dental services provided.

• Missing access or service rights. The title may not contain adequate legal rights to use an access road, car park, drainage system or utility route.

• Unauthorised alterations. Dental fit-out works may have been carried out without landlord, planning or building regulations approval.

• Landlord delay. The landlord may take time to appoint solicitors, review financial information or negotiate the licence to assign.

• The wrong party owns the premises. The practice may trade through a company while the property is owned personally by a dentist, family member or another entity.

These issues do not always prevent a sale, but they should be identified before the parties commit to an unrealistic timetable.

How can buyers and sellers avoid property delays?

Early preparation is the best way to reduce risk

A seller should locate the title documents, lease, licences, planning papers and alterations approvals before marketing the practice. If the lease is short or landlord consent will be required, the likely process should be investigated early.

A buyer should instruct its property and corporate advisers together so that the purchase agreement, lease assignment or freehold transfer, lender requirements and regulatory timetable work towards the same completion date.

Practical steps include agreeing the property structure in the heads of terms, identifying the legal owner early, contacting the landlord promptly, starting searches and surveys without delay, and avoiding an unrealistic completion date.

The business and premises documents should usually complete together.

How JLN can help with dental practice property issues

We coordinate the property and business elements of the transaction

Dental practice transactions require the corporate and property aspects of the deal to be closely coordinated.

The Jonathan Lea Network can assist with reviewing property provisions in heads of terms, examining leases and freehold titles, negotiating lease assignments and licences to assign, negotiating new leases and lease extensions, advising on permitted use, alterations and repair obligations, dealing with rent deposits and guarantees, identifying title issues, coordinating lender requirements and managing the property and business completion process.

If the practice is leasehold, freehold, or owned by a connected party, JLN can coordinate the business sale documents with the lease assignment, new lease or freehold transfer. LINK TO JLN commercial property and lease assignments service pages.

Further information can be found in JLN’s Buying or Selling a Dental Practice pillar guide and its Commercial Property and Lease Assignments service pages.

Speak to JLN before agreeing the property terms

Property issues can change the deal

Property issues can change the value, funding and timetable of a dental practice sale. They are also among the issues most likely to involve third parties whose timescales cannot be controlled by the buyer or seller.

Early legal advice can establish whether the premises arrangements are secure, identify the consents that will be required and ensure that the heads of terms reflect a realistic route to completion.

If you are buying or selling a leasehold or freehold dental practice, contact The Jonathan Lea Network at an early stage. Our team can coordinate the business and property elements of the transaction and help work towards a legally robust and commercially workable completion.

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.

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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.