Can You Buy a Dental Practice and the Building Together in Ontario?

If you are looking at buying a dental practice in Ontario, you may have noticed that some listings include the building the clinic operates out of, while others only include the practice itself. Buying both the business and the real estate together can sound simple on paper, but in practice it often involves two related, and sometimes quite separate, transactions happening at the same time.

Below, we walk through some of the main issues that may come up when a dental practice and its building are purchased together, along with a few reasons it is generally worth having a lawyer review the deal before you sign anything.

The Practice and the Property May Be Valued Separately

Even when a dental practice and its building are being sold by the same person, the two assets are usually valued differently. The practice itself may be valued based on things like patient records, equipment, goodwill, and revenue, while the building is generally valued more like any other piece of commercial real estate, based on location, condition, and market comparables.

In some cases, the seller may ask for one combined purchase price, while in others, the price may be broken out separately for the practice and the property. Depending on the facts, how the price is allocated can affect financing, tax treatment, and even how the deal is structured, so this is usually something worth reviewing closely before you agree to a number.

You May Be Signing More Than One Agreement

Buying a dental practice and the building it sits in can sometimes involve two separate agreements, one for the purchase of the practice (often structured as a share purchase or an asset purchase) and another for the purchase of the real estate. In other cases, a single agreement of purchase and sale may try to cover both, with separate schedules for each component.

Either approach may work depending on the situation, but it is generally important that the agreements line up with each other, particularly around closing dates, conditions, and what happens if one part of the deal falls through but the other does not. A lawyer can help review how the agreements are structured and whether they properly reflect what you and the seller have agreed to.

Financing May Work Differently for Each Piece

Lenders often look at practice financing and property financing differently. A loan for the dental practice itself may be assessed based on things like patient volume, revenue, and the value of the equipment and goodwill, while financing for the building may be treated more like a commercial mortgage, with its own approval process and requirements.

In some cases, buyers use one lender for both pieces, while in others, separate lenders or separate loan products may be involved. Depending on the facts, this can affect your closing timeline, so it is generally a good idea to speak with a lender early and to let your lawyer know how the financing is being structured as the deal comes together.

Due Diligence Usually Covers Both the Business and the Building

When you are buying a dental practice on its own, due diligence often focuses on things like the lease, patient records, staff agreements, equipment condition, and the financial history of the practice. When the building is also part of the deal, due diligence generally expands to include the property itself.

This may involve reviewing the condition of the building, any environmental concerns, zoning and permitted use, outstanding work orders, and whether the property is suitable for continued use as a dental clinic. In some cases, a property inspection or environmental assessment may be recommended before closing, depending on the age and history of the building.

Title Review Is an Important Step

Before closing on the real estate portion of the deal, a lawyer will typically conduct a title review to check for things like existing mortgages, liens, easements, or other registrations on title that could affect your ownership or use of the property. This step is separate from due diligence on the practice itself and is specific to the real estate transaction.

Depending on what turns up during a title review, it may be necessary to request that certain items be cleared or addressed by the seller before closing can proceed. This is one of the reasons real estate closings often involve their own timeline and set of conditions, even when they are happening alongside a business purchase.

Closing Requirements Can Differ for Each Transaction

Because a dental practice purchase and a real estate purchase are governed by different types of agreements, the closing requirements for each may not be identical. The practice purchase may require things like a bill of sale, assignment of a lease or patient records, and confirmation of regulatory or licensing matters, while the property purchase generally requires items like a deed, discharge statements for any existing mortgages, and adjustments for property taxes.

In some cases, both closings happen on the same day, which can add coordination steps to make sure funds, documents, and registrations are all handled properly and in the right order. Your lawyer can help coordinate this so that both transactions close smoothly.

Final Thoughts

Buying a dental practice and the building it operates in can, depending on the facts, offer some long term advantages, but it also tends to involve more moving parts than buying the practice alone. Separate valuations, agreements, financing arrangements, and closing requirements can all come into play, and how they interact will depend on your specific deal.

If you are considering a purchase like this, it is generally a good idea to speak with a lawyer early in the process, before you sign an offer, so that the structure of the deal can be reviewed with your goals in mind.

Frequently Asked Questions

Q: Can I buy a dental practice and the building in one agreement?

A: In some cases, yes, though it often depends on how the seller wants to structure the sale. Some deals use a single agreement with separate schedules for the practice and the property, while others use two separate agreements. What makes sense may depend on the specific transaction, so this is generally worth discussing with a lawyer.

Q: Will the practice and the building be valued the same way?

A: Not usually. The dental practice is typically valued based on factors like goodwill, patient records, and revenue, while the building is generally valued as commercial real estate. Depending on the facts, the two values may be negotiated and allocated separately, even within one overall purchase price.

Q: Do I need separate financing for the practice and the property?

A: It depends on your lender and how the deal is structured. Some buyers use one lender for both the practice and the property, while others use separate loans or lenders for each. This can affect timing, so it is generally a good idea to discuss financing with a lender early in the process.

Q: What kind of due diligence is involved when buying both the practice and the building?

A: Due diligence generally covers both the business side, such as patient records, staff agreements, and equipment, and the property side, such as title, zoning, permitted use, and the physical condition of the building. Depending on the facts, additional steps like an environmental assessment or property inspection may also be recommended.

Contact DevLaws

If you are considering buying a dental practice and the building it operates in, the team at DevLaws can help you understand how the practice purchase and the real estate purchase may fit together. Contact DevLaws today to schedule a consultation and talk through your specific situation.

contact@devlaws.com | +1 437 290 0424 | devlaws.com

Disclaimer

This article is provided for general information purposes only and does not constitute legal advice. It is not intended to create a lawyer-client relationship. Laws and regulations can change, and the information here may not reflect the most current developments. Every situation is different, and the information in this article may not apply to your specific circumstances. If you are considering buying a dental practice and a building together, you should consult a qualified lawyer, and where relevant an accountant, for advice tailored to your situation. DevLaws does not guarantee any particular outcome or result.