How to Prepare for an Assisted Living Business Transfer in 2024
Best practices to help the transaction go smoothly.
Increase in Ownership Transfers
According to a recent report by the National Investment Center for Seniors Housing & Care, assisted living purchases have been on the upswing in 2023, and there is some consensus that more transfers are coming in 2024. This is due to several factors, such as the aging population, the increased demand for quality care, optimism about possible favorable changes in financing conditions, and owners transitioning out of the business. If you are planning to buy or sell an assisted living residence (“ALR”) in 2024, you need to be prepared for the legal and financial aspects of the transaction. An ALR is not merely a rental property, but a business focused on care. Therefore, you need to have a clear understanding of what you are buying or selling, and what are the terms and conditions of the deal.
Here is a list of a few of the essential pieces of information that you need immediately on hand to help your attorney prepare the asset purchase agreement (aka, “Purchase and Sale Agreement” or “Business Purchase Agreement”) for an assisted living, or the purchase/sale of any group home. This will help you avoid delays, disputes, and surprises as you prepare fo the closing.
What You Need to Have On Hand to Support Contract Drafting
An asset purchase agreement is a contract, a legal document that outlines the details of the transfer of an ALR from the seller to the buyer. It specifies the purchase price, the effective date, the assets and liabilities involved, the representations and warranties, the indemnification clauses, and other relevant terms. This article will discuss the most basic information you need to have on hand for your attorney to begin drafting your asset purchase agreement.
Your attorney will require the following information:
Purchase price of the Business. This seems obvious, but this is a commonly overlooked and missing piece of information. The price of the business is different than the price of the real estate, which is typically handled under a separate contract – a real estate contract. The purchase price of the business reflects the value of the assets and liabilities that are being transferred, such as furniture, equipment, inventory, contracts, licenses, goodwill, etc. The purchase price may be subject to adjustments based on the financial performance of the business before and after the closing.
The anticipated effective date of the contract. This is the date when the ownership and control of the business are transferred from the seller to the buyer. It may or may not coincide with the date of the real estate closing, depending on the agreement between the parties. The effective date may also be contingent on certain conditions, such as obtaining regulatory approvals, securing financing, or completing due diligence on the business.
The name of the Seller (or legal name of Seller’s company) and its office address. This is the entity that owns and operates the ALR and is selling it to the buyer. Again, this seems obvious, but is commonly overlooked. Sometimes it is overlooked because the Seller has forgotten that the business is owned by a different entity than the real estate. The seller should provide the full and correct name of the company, as well as its address and contact information.
The name of the Buyer(s) (or legal name of Buyer’s company) and its office address. This is the entity that is buying the ALR and will assume the ownership and operation of the business. This information is often overlooked for the same reason as the Seller’s business name – Buyer and Seller simply overlooked the fact that the real estate is being purchased by a different company than that purchasing the business. The buyer should provide the full and correct name of the company, as well as its address and contact information.
The official name of the existing business with the health department. This is the name under which the ALR is licensed and registered with the state health department. This information is often overlooked because the official business name is frequently not exactly the name used for licensing at the health department. The buyer should also verify that the name matches the one on the license and the records of the health department.
The license number of the existing business with the health Department. This is the number that identifies the ALR as a licensed and regulated facility by the state health department. The buyer should verify that the license is valid and current, and that there are no violations or complaints against the ALR.
The anticipated date for the real estate closing. This is the date when the title and possession of the property where the ALR is located are transferred from the seller to the buyer. The real estate closing is often handled by a separate contract, and sometime through a different closing agent, depending on the agreement between the parties. The real estate closing may also be subject to different conditions, such as obtaining a satisfactory appraisal, inspection, survey, or environmental assessment.
The tangible and intangible assets that are being purchased. This is a list of all the assets that are included in the sale of the business, such as furniture, equipment, inventory, supplies, contracts, licenses, permits, trademarks, trade names, goodwill, etc. The buyer should inspect and inventory all the assets to ensure that they are in good condition and working order, and that they match the description and value provided by the seller. The buyer should also review all the contracts and licenses to ensure that they are assignable and transferable, and that they do not contain any unfavorable terms or obligations. The Buyer, or Buyer’s attorney will often provide an inventory template to be completed for later attachment to the asset purchase agreement.
The assets that are NOT going to be transferred. This is a list of all the assets that are excluded from the sale of the business, such as cash, accounts receivable, accounts payable, personal property, vehicles, etc. The seller should specify which assets are not part of the deal, and how they will be disposed of or retained by the seller. The buyer, or buyer’s attorney will often provide a template for the seller to complete that lists the excluded assets. This list will also be attached to the asset purchase agreement.
Do the current operations accept Medicaid residents? This is a question that the buyer should ask the seller as part of the due diligence on the business. This will be important for the buyer to properly assess the profitability of the business and to determine how much time might be necessary to obtain certification from the Medicaid program. This is important because the buyer will want to be the direct payee of those Medicaid funds and that is not possible unless they are certified to under the program.
Do you want the Seller to be available for short term consulting? This is a question that the buyer should ask the seller to determine if they want the seller to provide any assistance or guidance during the transition period. The seller will often have valuable knowledge and experience that can help the buyer operate the ALR smoothly and efficiently. The buyer should negotiate the terms and fees of the consulting agreement with the seller and include it as part of the asset purchase contract.
Buying or selling an ALR requires attention to detail, aw well as careful planning and preparation. While there is considerably more information needed for the asset purchase agreement, the list above will save you considerable time and legal fees as you prepare for the transfer of ownership.
The information herein is intended to be educational and an introduction to the subject matter presented. Despite any statutory or regulatory references cited in the article above, it is NOT specific legal advice to be relied upon for specific individual circumstances. Contact your own legal professional or reach out to our firm if you would like specific advice on this topic.
Look for additional blog posts on topics of interest to Assisted Living and Behavioral Health operators. We welcome topic suggestions! Write to brian@pinkowskilaw.com if you are curious to learn more about a certain topic impacting assisted living or other group housing concerns.