What to consider when purchasing a care home – The legal aspects

Buying a care home is a complex business transaction which will require considerable time and dedication on your part. Whilst the rewards will no doubt be satisfying, the legal process is not always straight forward and it requires input from specialist legal advisors who are experts in both business law and health and social care law.

If you are about to embark on a care home purchase, you should carefully look at what to consider when purchasing a care home:

Structure

Care homes are often operated by their owners through limited companies. Therefore, you need to consider at the outset whether the transaction should be undertaken by way of a purchase of the shares in the company or by way of a purchase of the business and assets of the company. Much will depend on tax. As a buyer, you would pay 0.5% stamp duty on a purchase of shares whereas a business and asset purchase is likely to result in a greater stamp duty liability. However, a seller will be keen to consider the implications of things such as entrepreneurs’ relief and capital gains tax.

Due diligence

As a buyer, have you undertaken sufficient ‘due diligence’ on the care home? Have you looked at critical things such as whether the care home has a satisfactory CQC report or whether the care home has been the subject of any litigation or major investigations? Are you satisfied that the care home has been complying with regulatory requirements? You should not only undertake legal due diligence but also finance, tax and operational due diligence.

CQC

As a buyer, you will need to be registered with the CQC before you can take over the care home. This process can take several weeks and will need to be factored into the timing of the transaction. However, if the purchase will be undertaken by way of a share purchase of the seller’s company which operates the care home, the company should already be registered with the CQC. As a result, the process is easier as you will not require a separate registration. You will simply be stepping into the shoes of the company’s existing registration.

Local authority funding

Are any of the residents of the care home funded by the local authority? If so, as a buyer, are you familiar with the local authority’s contract with the care home? If you are buying the shares in the company which operates the care home, is there a ‘change of control’ clause in the local authority contract which needs to be addressed? Such ‘change of control’ clauses need to be carefully handled and often require prior consultation with the local authority before the purchase can complete.

Employees

As a buyer, are you familiar with the terms and conditions of employment of the employees at the care home? Do they fit in with the terms and conditions you wish to adopt? If you are buying the business and assets of the care home, TUPE will apply (it will not apply in a company share purchase). TUPE is the Transfer of Undertakings (Protection of Employment) Regulations 2006. The
purpose of TUPE is to safeguard the employment relationship and contracts of employment of employees, if the business which they are in changes from one owner to another. Both buyer and seller have several obligations to comply with under TUPE. Do you understand what those obligations are and what the consequences would be if you fail to comply?

Financing your purchase

If you are seeking bank funding for the purchase, you will need to ensure that you fully understand the terms of any loan and security documentation you will be required to enter into with your bank. If you are using a limited company for the purchase, your bank may require a personal guarantee from you. Further, if you are purchasing the care home by way of a company share purchase, you will need to ensure that any security currently registered against the target company is discharged prior to completion of the sale.

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