Selling a Dental Practice in Ontario: Legal Steps To Consider

After years of building a dental practice, selling it is a significant decision. Whether you are planning your retirement, relocating, or simply ready for a change, the process involves a lot more than agreeing on a price with a buyer. There are financial records to organize, staff to think about, leases to deal with, and a number of legal and practical details that can affect how smoothly the sale goes.

This article walks through some of the key areas to consider when selling a dental practice in Ontario. It is general information only, and every situation is different, so you should speak with a lawyer who has experience with dental practice transactions before making any decisions.

Start With a Clear Picture of What You Are Selling

Before anything else, you need to understand what your sale actually includes. Most dental practice sales in Ontario are structured as asset sales, meaning the buyer is purchasing specific assets of the practice rather than the corporation itself. Those assets typically include equipment, patient records, goodwill, furniture, and in some cases the lease.

In some situations, a share sale may be considered instead, where the buyer purchases shares of the corporation that owns the practice. Each structure has different legal and tax implications, and the right approach will depend on your specific situation. A lawyer and an accountant familiar with dental practice sales can help you figure out which structure makes more sense for you.

Get Your Financial Records in Order

Buyers and their advisors will want to review the financial history of your practice before committing to a purchase. This typically includes several years of financial statements, tax returns, overhead reports, and details about your patient base such as active patient counts and billing history.

If your records are not well-organized or are difficult to interpret, it can slow down the sale or give a buyer reason to lower their offer. Getting your books in order well before you plan to sell is generally a good idea. It also puts you in a stronger position when it comes to negotiating the purchase price.

The Lease on Your Practice Space

For many dental practices, the office lease is one of the most important pieces of the transaction. If you do not own the building, the buyer will likely need to either take over your existing lease or negotiate a new one with your landlord.

Most commercial leases require the landlord's consent before a tenant can assign the lease to someone else. Whether your landlord will consent, and under what conditions, depends on the terms of your lease and the landlord's assessment of the incoming tenant. This process can take time, and in some cases the landlord may want to renegotiate terms as a condition of approving the assignment.

It is worth reviewing your lease early in the process to understand what obligations apply. Depending on the facts, there may also be provisions about what happens at the end of the lease term, or what rights the landlord has if the practice changes hands. A lawyer can help you review the lease and advise you on what to expect.

Equipment and Physical Assets

Your dental equipment, including chairs, x-ray machines, sterilization units, and other clinical tools, will typically be listed and valued as part of the sale. Some equipment may be relatively new and easy to value; other pieces may be older and require an assessment.

It is also worth identifying whether any of your equipment is leased rather than owned outright. If equipment is subject to a financing agreement or a separate lease, those obligations will need to be addressed as part of the transaction. The buyer may take on those obligations, they may be paid out from the sale proceeds, or the equipment may be excluded from the deal entirely depending on the circumstances.

Accounts Receivable

Accounts receivable, meaning money owed to your practice for services already performed, requires some thought in any dental practice sale. There are generally a few ways to handle this.

In some transactions, the seller retains the accounts receivable and collects them after the sale closes. In others, the buyer purchases the accounts receivable as part of the deal, often at a discount to account for the risk that some amounts may not be collected. There are also arrangements where the buyer assists with collection on behalf of the seller for a period of time.

Which approach is right will depend on the size of your receivables, the age of the outstanding balances, and what both parties are comfortable with. This should be addressed clearly in the purchase agreement so there is no confusion about who is responsible for what after closing.

Staff and Employment Considerations

If you have hygienists, dental assistants, receptionists, or other employees, their situation will need to be addressed as part of the sale. In Ontario, when a business is sold and the buyer continues operating it, there may be employment law obligations that apply, depending on how the transaction is structured.

Generally speaking, employees are not automatically transferred to a new owner. Whether a buyer hires your existing staff, and on what terms, is typically negotiated as part of the transaction. If employees are not hired by the incoming owner, they may be entitled to notice or severance under Ontario's Employment Standards Act, 2000, depending on the circumstances. This can be a significant cost, and it is something both sellers and buyers should plan for.

Being transparent with your staff about the timeline and transition plan, at the appropriate point in the process, can help manage expectations and reduce disruption during a sale.

Regulatory and Professional Considerations

Dental practices in Ontario are regulated by the Royal College of Dental Surgeons of Ontario. There are rules about who can own a dental practice, and the transfer of a practice may involve notifications or steps that need to be taken with the regulator. Patient records, privacy obligations under Ontario's Personal Health Information Protection Act, and how patient information is handled during a transition are also important areas to consider.

If you are unsure about what regulatory steps apply to your situation, speaking with a lawyer who has handled dental practice transactions can help you avoid any issues that could complicate or delay the closing.

Closing Conditions and the Purchase Agreement

Once a buyer has been found and a price has been agreed upon, the details of the transaction get documented in a purchase agreement. This is a legally binding contract that sets out what is being sold, for how much, and on what conditions.

Most purchase agreements include closing conditions, which are things that must happen before the sale is finalized. Common conditions in dental practice sales include the buyer obtaining financing, the landlord consenting to a lease assignment, the seller's representations about the practice being accurate, and sometimes a transition period where the seller agrees to remain available to help introduce the buyer to patients and staff.

The purchase agreement is one of the most important documents in the entire process. It protects both sides and sets the expectations for how the transaction will unfold. Having a lawyer review and negotiate this agreement on your behalf is strongly recommended.

A Few Practical Points To Keep in Mind

• Start planning well in advance. Dental practice sales can take months or longer from the time you decide to sell to when the deal closes.

• Consider working with a dental practice broker or advisor alongside your legal and accounting team, as they can help with valuation and finding qualified buyers.

• Confidentiality matters. You will likely want to keep the sale quiet until the deal is closer to closing, especially with respect to patients and staff.

• A non-compete agreement is common in dental practice sales, where the seller agrees not to open a competing practice nearby for a period of time. The terms of any non-compete should be carefully reviewed.

• Tax planning is a significant part of any practice sale. Speaking with an accountant early in the process is important.

Frequently Asked Questions

Q: How long does it typically take to sell a dental practice in Ontario?

A: There is no fixed timeline, and the process can vary quite a bit depending on the circumstances. Finding the right buyer, negotiating the agreement, dealing with the lease, and completing due diligence can take several months in total. Some transactions move faster if financing is straightforward and the landlord is cooperative. Others take longer. Planning well in advance gives you more flexibility and tends to lead to better outcomes.

Q: Do I have to tell my employees before the sale closes?

A: There is no simple yes or no answer to this. Most sellers prefer to keep the sale confidential until a deal is close to being finalized, partly to avoid disruption and partly because a deal can fall through before closing. At the same time, how and when you communicate with employees can have practical and legal implications depending on how the transaction unfolds. You should speak with a lawyer about the right approach for your specific situation.

Q: What happens to my patient records when I sell the practice?

A: Patient records are subject to Ontario's privacy laws, including the Personal Health Information Protection Act. Generally, there are specific steps that need to be followed when transferring custody of patient records, and patients may have a right to be informed depending on the circumstances. This is an area where getting proper legal guidance is important, as the rules can be technical and the consequences of getting it wrong can be significant.

Q: Can I stay involved in the practice after the sale?

A: Yes, in many cases sellers agree to a transition period where they remain available to help with patient introductions and to support the new owner in getting settled. The length and terms of that arrangement are typically set out in the purchase agreement. Some buyers prefer a longer transition; others want to get started independently right away. It is worth thinking about what you are comfortable with and building that into the negotiation early on.

Contact DevLaws

If you are thinking about selling your dental practice in Ontario and want to understand what the process involves, DevLaws can help. Contact us today to schedule a consultation and talk through your 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 selling a dental practice in Ontario or have questions about any of the matters discussed here, you should consult a qualified lawyer for advice tailored to your situation. DevLaws does not guarantee any particular outcome or result.