Unique Legal Issues in the Sale or Purchase of a Dental Practice

Buying or selling a dental practice presents the parties with a myriad of transitional issues commonly found in most sales of small business: new leasing arrangements, inventory transfers, taxation issues, and valuation of the business at present and in the future, to name just a few. But there are unique issues confronting a dental practice owner and a prospective purchaser of a practice which should be dealt with by the professionals themselves in conjunction with a good business or transactional attorney.

Probably one of the most often neglected areas of contracts for purchase and sale of a practice are the issues involving retreatment. If patients return to a new practice with defective or failed dental work, expecting to have the new dentist repair the problems at no or reduced cost, the new dentist faces a costly burden not of his or her own making, and not anticipated when the practice was purchased. When the contract for the sale of the practice is drafted details concerning these types of situations should be discussed not only amongst attorneys for the parties but between those with the knowledge that will allow mutual conclusions over a variety of possible situations that may occur in dentistry over time-the dentists themselves. First of all, to have a clause in the contract that states that such problem will be resolved “as mutually agreed” fails to acknowledge that retreatment problems can be extremely costly, as in the failure of more expensive treatments which may even result in malpractice actions. Details in the purchase and sale agreement should be present that requires a limit to the period in which retreatment discounts or solutions must be considered, such as for a one year period after the sale. The buyer should be required to notify the seller of the need for retreatment at what he or she believes should be at reduced costs or no charge, and the seller given a short period of time I which to agree to complete the retreatment. A clause as to who will pay for materials used can be included. The contract can state what will happen if the seller declines to complete retreatment, or if the treatment is undertaken in an emergency situation, in regards to the buyer performing the treatment and billing the seller a certain definite percentage of the buyer’s usual and customary charges for the retreatment.

Certain warranties should be written into an agreement that take into account some of the necessary ongoing responsibilities that a dental practice seller and purchaser must be aware of. For instance, it should be noted in the contract that there have been no outstanding investigations for OSHA violations, or violations that may have been discovered in the past and not rectified in accordance with OSHA regulations, or that potential violations may be found in the near future.   The seller should be willing to warranty that no patients or insurers have been billed for goods or services for which there is no compensation under an insurance plan, even though it may show up in the accounts receivables built into the purchase price.

How obligations to employees involved in the practice which is being transitioned is important both for adherence to state employment regulations, for fulfilling contractual arrangements, and for meeting reasonable expectations of employees who are being terminated or reemployed during a transition. An experienced employment law attorney with knowledge of state employment laws and implied and express employment agreements can often assist in this process.   For example, if not all compensable vacation time has been paid to ongoing employees by the seller, the employee may mistakenly believe that all such compensation is the buyer’s responsibility. As well, when an employee is terminated during the transition, that employee must be paid all due compensation shortly after termination, and the responsibility for such compensation must be clearly laid out. Provisions detailing the potential problem of “successor liability” to labor law violations should be put in a purchase and sale agreement. With regard to ongoing employees, it must be made clear in the contract that employees’ express or implied agreements as to future raises or maintenance of current pay rates are not valid with the incoming owner. Since it is often particularly important in a dental practice to have ongoing employees to maintain the good will with patients that has been generated prior to the sale by working with these employees, whether they are hygienists, receptionists or office managers, the details as to what employment agreements will be maintained and what will be terminated must be stated clearly in the purchase and sale contract.

Many dentists are presented with “standard form” agreements by brokers or attorneys not necessarily used to the particular circumstances of the buyer and the seller with regard to their individual practice business practices and styles.   Customization of these agreements for the individuals is extremely important, for differences in intent and circumstances may exist which if not reviewed properly by the principles, would alter a purchase and sale significantly, and may create long term, costly and perhaps irrevocable mistakes.