Purchasing your first dental practice - Key insights from the Real Estate team

Welcome to our second episode of our dental podcast from our primary care sector here at Weightmans setting up a dental practice. My name's Caitlin Batty, a chartered legal executive in our primary care team. This week on the podcast, I'm speaking with Matthew Jones, a principal associate in our real estate department. Matthew, do you want to tell us a little bit about your background and what you'll be talking to us about today? Of course. Hi, Caitlin. Thank you very much for having mw, very, much looking forward to it and talking about all things real estate. Yeah. I mean, as you've already said, I'm a principal associate, here at Weightmans, and my specialism is property. It's commercial property, but with a primary care angle. So I have a wealth of experience of acting on behalf of health care sector clients, be those dentists, GPs, pharmacists. I've acted, across the board for many years now. It sounds like you do have a lot of experience, obviously, in in this particular field. So from your experience, I understand that you've been involved in many transactions like this. What are your top tips for our listeners today on buying a dental practice? Oh, gosh. I think, really, I can probably summarize it in in just one tip, and that is for individuals who are considering, buying a practice or setting up a practice, is to carry out their due diligence. And by due diligence, what I mean there is effectively looking into, the property, primarily. Obviously, I'm talking here today from a property angle. And very deep down into the property itself, try and find out as much as you possibly can. Now the way that that will come about is when you instruct a specialist health care or primary care solicitor, they should raise a number of inquiries of the seller of the of the property, and those inquiries will, as I said earlier, delve deep into the property itself. So what you're effectively looking for is trying to ascertain whether there are any issues. You know, for instance, has the property got asbestos? Another issue might be, is there an energy performance certificate for property? What's the planning situation? So there's a myriad of different elements and different things that need to be looked at and investigated, but it ultimately comes down to that one top tip. Do your due diligence. Look into the property. Make sure you're fully aware of of what it is you're buying or where you're going to be occupying. Yeah. That does seem to be like a running theme. I know that in series, series at the episode one, Abby did speak on due diligence as well. And she had also touched upon, obviously, determine whether or not it was a freehold property and a leasehold property. Obviously, in in your experience, what is the difference between a freehold property and leasehold property for someone who may not know, and how would a first time buyer find out that information? Right. Okay. So in essence, a freehold property is where a piece of land and any buildings on it are owned, by that person by a person or an entity who effectively has ultimate control, and they are what are referred to as the freeholder. And that freeholder will have control over the land and the buildings and responsibility for their repair and maintenance, etcetera. Contrast that to a leasehold property where a leasehold property is essentially a piece of land or buildings, which are occupied under the term of a lease. So a lease is a comprehensive document which has a definitive length of time, associated with it where the person who has the benefit of that lease is effectively the occupier of of the property. Now the lease allows and determines the nature of that occupation. It will have particular obligations, for instance, whose responsibility it is to maintain the land or the buildings, whether there is a rent payable, and also what that leaseholder can and cannot use the the property for. Now how do you go about finding out whether a property is freehold or leasehold? Well, the first port of call is Land Registry. Now the vast majority of property is registered at Land Registry. I won't I won't go into detail and and bore, the listeners of when compulsory registration came into force and what happens where property is unregistered because I don't think we'll have enough time on the podcast today, Caitlin. But, essentially, the land registry is, for one to the better word or or or phrase, a database, and that contains details of all land, and property and the owners of that land and property. And what it will also say is whether that land or property is freehold, going back to what freehold means earliest, that person has ultimate control, or whether it's leasehold, I. E. There is that definitive period of time of which a person occupies that premises. And that should be ascertainable from Land Registry when you carry out a search of the database, and you obtain what are called office copies from, from their database. I try to keep it simple. Yeah. Yeah. No. That's that that that does it make sense? And hopefully, obviously, it will absolutely make sense for our listeners as well. I guess my next question would be, if a buyer is taking bank lending, how does this impact the property elements of their transaction? Oh, that's a very good question. It impacts the property elements of transaction in in a number of ways. Essentially, the bank will have particular requirements that need to be satisfied in order that they will lend the money. Now these requirements may differ from bank to bank. So it's very difficult for me to say on this podcast today that all banks will want x, y, and zed because there are slight differences. There are little nuances from transaction to transaction, but there are themes and there are usual requirements. And one of those is, for instance, property searches. Now a bank is likely to want a full suite of property searches. And what I mean by property searches are, for instance, if you've ever bought a house, when you buy a house, you have property searches carried out. And these searches are an environmental search, for instance, a chancel repair search, a water and drainage search. Effectively, they are searches that are carried out by a third party. They're not carried out by the solicitor that effectively, again, going back to that point earlier, look into, delve deep into the property itself. So let's say, for instance, a drainage and water search that will identify whether it's whether the property is connected to mains water. A local authority search, which is another form of search, will identify any planning permissions that are associated with the property. It may also identify what the permitted use of that property is under planning legislation, whether there are any restrictions associated with it, for example, community infrastructure levies and and and things like that. So the property searches are often nearly always, in fact, a requirement of the bank. And in addition to that, they will want, the bank that is, assurances that appropriate due diligence has been carried out. So it goes back to that point that I made earlier in a sense of carrying out that thorough investigation into the property. And one of the ways that that's done is through what we refer to as CPSE's. Now they that stands for commercial property standard inquiries, and there are a variety of different forms of those. But one of the main, sets of CPSE is the CPSE one, and that's a very comprehensive document. And that lists a whole load of inquiries that are raised by the buyer to the seller, and the seller completes that form announces a lot of information, provides a lot of information in relation to the property. And the bank will want an assurance that that's been carried out, that that, due diligence exercise has been completed. What usually happens as part of a transaction is that the acting solicitor will effectively report to the bank and give an assurance that the property that the bank are lending on is, a safe bet, for want of a better phrase, that there are no potential issues that may ultimately have an adverse effect on their funding. It does seem to be a con common running theme then that that this due diligence is extremely important. I guess tie tying back to my previous question regarding the freehold and the leasehold, is there any due diligence that needs to be taken out more if you got to freehold or to leasehold, or is it just the same, like, sort of due diligence that has to be carried out on both? Yeah. Absolutely. So where the property is leasehold, what you would want to know if you were a potential buyer of a of a of a practice or you were taking a property that was leasehold is that you would want to have a report carried out or an investigation carried out as to the terms of that lease. So, effectively, looking into what your obligations are as a tenant, for instance, whose responsibility is it to repair the property, also looking at the length of the term provided by that lease, what the obligations are in relation to service charge. Is there a service charge? And by service charge, I mean a contribution towards costs for the maintenance of communal areas, for example. So all of that is something that would have to be looked at and reported on in relation to a lease. And in some instances, a bank, going back to, your question earlier in relation to, lending and banking requirements, the lender may actually want a particular length of term on their lease. It is not unusual for the purposes of their security that they would want a minimum length of term. And in those instances, it's always best to speak with your acting solicitor to see what can be done, if, for instance, the remaining term on that lease is less than what the bank require because it might be the case that the lease has to be extended, and there will need to be negotiations with the landlord, or another lease put in place altogether. So there is quite a lot to consider when there's a leasehold property. And, again, it all comes back to that investigation, that report, and looking into, any onerous obligations or any potential issues that may lie within that lease. Yeah. No. That well, that that leads quite nicely onto to my next question, really. Obviously, we've touched upon leasehold property there. However, I understand that a landlord might not always be the seller. It may be a third party landlord. In those situations, are there any additional steps that a buyer may wish to take or common issues that might arise in your experience? Yeah. So for instance, there can be situations where a client is looking to buy a practice from a seller, and that seller, has the benefit of a lease, but the seller doesn't own the property. There is another individual, a third party, if you will, who owns the freehold of that premises, and in those circumstances what would have to happen is that provided the lease allows for what's known as assignment, and by assignment I mean effectively the transfer of the benefits of the lease from one individual or one entity to another individual or another entity, that the consent of the freeholder, so that person above the seller, if you will, in the chain, has to be obtained. Their consent has to be obtained for the transfer of that lease. And in that scenario, what usually happens is that the seller, who has the benefit of the lease at the moment, approaches their landlord or the freeholder, for instance, and requests their consent to transfer the benefit of the lease to the buyer. Now, usually, in those cases, the seller will have to cover the legal costs of the landlord in those circumstances, to prepare what's referred to as a a license to assign. So a a document that effectively consents from, consents to the landlord, effectively granting the the assignment or the transfer of that lease. And in addition, the landlord may attach certain conditions to the transfer of that lease. For example, the landlord may want the buyer, the individual who's coming into the practice, to give a rent deposit. The, landlord may want the incoming tenants, the buyer, to provide some other assurances, for example, a guarantor or ask the outgoing tenant, the seller, for what's referred to as an authorized guarantee agreement, effectively providing an assurance that if the buyer were to, fail to comply with these obligations onto the lease, that the buyer that the seller would perform those obligations. But all of that depends on the actual lease itself. So those are just a few examples of what I've come across in my experience, but I can't stress that it is different from case to case. It all depends on the, requirements and obligations that are set out in that lease document, which is why it's imperative and very important that the acting solicitor reviews that document thoroughly. Yeah. It sounds like that it's really important to have someone who knows these type of nuances that you've mentioned. And you also touched upon legal fees there. What other common disbursements and costs are incurred during this type of process? So, usually and, again, I I can only talk from experience to sort of have a broad brush approach to this because as I as I say, every case is different. But what you would usually expect to incur is obviously your own legal fees. But where a property is leasehold, there potentially might be fees associated with notification to the landlord of the assignment of the benefit of the lease. There may also be a rent deposit if it's a requirement of the landlord, as I mentioned earlier. But aside from that, generally, if you're taking bank funding or if you're carrying out those in that that thorough due diligence that I mentioned earlier and you have those property searches carried out, that will be an additional cost. So you'll have property searches. You will have costs associated with the transfer of the lease. You may also have, stamp duty land tax to pay. So if you're buying the freehold of the property, there may be stamp duty land tax, to be paid. Also, if the lease is being granted from scratch, so let's say, for instance, the landlord insists on a new lease being issued to the buyer, then there may also be stamp duty land tax payable in connection with the grant of that lease. So there are quite a lot of things to consider. As I say, that that's not sort of a absolute comprehensive list. It very much depends on, whether the individual is looking to acquire a freehold property or leasehold property and, the potential implications that, that those differences have. So I guess by way of putting it, there's no one size fits all in these in these types of these matters. Although it's a typical legal response, yes. That that that that's right. No. Well, I guess it's been a running theme throughout this whole podcast. There, obviously, there's a lot of different things that could come up here. However, obviously, that's why we have stressed the importance of really having someone who knows what they're talking about dealing with a transaction like this. Over the course of your many years of experience that you've got doing these sorts of things, how important is it that you have a health care lawyer who specializes in this niche area to assist with a transaction like this? Oh, I can't stress the importance enough. I really can't, Caitlin. I think instructing a health care lawyer, who specializes in this area is so important. Whilst there may be solicitors out there who offer a potentially lower fee, it is really unlikely that they will understand those nuances that affect health care professionals, the impact that potentially NHS elements may have, the ins and outs of particular sectors of, of primary care. But here at Weightmans, we have that experienced health care team that understand how health care professionals operate and what's important to them. So, yeah, I think it's absolutely imperative that if individuals are considering buying a property, taking the lease of a property, and it is within that health care sector that they instruct a specialist health care solicitor. Well, thank you so much for all that, Matthew, and thank you for taking the time to join us on the podcast today. Obviously, next week, we will be speaking with one of our employment specialists to talk about all things employment regarding buying and, setting up a dental practice. But, again, thank you so much for your time today joining us. No. Thank you. Thank you. It was an absolute pleasure to be here. Thank you very much, Caitlin.