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Heads of terms

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Heads of terms

To sign or not to sign?

Most dentists who are buying a dental practice will be asked to sign a set of heads of terms governing the basic elements of the purchase with the agent or with the buyer or in some cases, with both.

Whilst a sale contract for the sale and purchase of the dental practice will set out all of the specific terms required, the heads of terms, heads of agreement, or just “heads” as they are sometimes referred to, provide a summary of the key terms of the deal.  The heads of terms are not intended to be legally binding (except for obligations as to confidentiality and exclusivity, which are discussed later) and may not cover every scenario.  They are, however, a legal document and should not be signed without each party taking independent legal advice.

The format, style and details of heads of terms are personal taste and many agents or advisors will have their own style.   There is always a balance to be reached as there is a danger that the heads of terms take longer to negotiate that the main Sale Contract and can divert time and costs away from concentrating on the main deal.  Further, whilst the parties may agree matters in the heads of terms, it does not necessarily prevent any further negotiation when the parties look to negotiate the main terms of the Sale Contract.

Running through some key provisions in heads of terms:

  • A deposit

Most heads of terms will include a provision for a deposit to be paid by the buyer and provide for the circumstances in which this can be repaid if the deal falls through.   It is vital that before any deposit is handed over (or any heads of terms are signed at all), that the parties are both clear on what the heads of terms state and what they mean.    In most cases, the heads of terms will favour the seller in this regard and so with legal advice, it is possible to insert provisions allowing a more balanced approach between the seller and the buyer’s requirements, so that the deposit is repayable in certain circumstances.   For example, where there is a material difference between the advertised Practice and the results of the buyer’s due diligence, or if the buyer is left with no option but to pull out of the sale as a result of the seller’s unreasonable behaviour.

  • Confidentiality

The duty of confidentiality is important to both parties as the seller will not want patients and staff to know about the sale until the right time; whereas the buyer may not yet have informed their principal where the currently work that they may soon be leaving!

  • Timetable

Whilst it is helpful to set out a timetable for the stages of the transaction, both parties often agree a timetable without much experience as to how long a sale and purchase can actually take.   When signing heads of terms, some parties can often quite innocently believe that the process only takes 6-9 weeks.  But in most cases, the parties are looking at anywhere from 6 – 12 months for reasons beyond their control and it is far better to ensure that the parties know where they stand at the start of the transaction.  In some cases, the parties will fix a date much shorter than the 6-12 months to ensure that they know from an earlier stage whether or not there are any reasons why the matter will not proceed.

  • Exclusivity

Linked with a timetable is often a period of exclusivity granted by the seller during which time the seller agrees to not market the Practice or negotiate with other potential buyers.  It is very important for the parties to know how long the period of exclusivity shall last and whether or not that is tied into the timetable or the deposit.  Some sellers will want to retain the deposit if at the end of the exclusivity the parties have not exchanged contracts.  The buyer will not want this and will want to have the right to receive back the deposit irrespective of whether or not the period of exclusivity runs out.

If the parties fail to get the heads of terms right, and the sale does not proceed, then the buyer can be left with having to take the seller to court in order to recover their deposit.

In summary, therefore, please ensure that you understand what the heads of terms state before you sign them by taking the appropriate legal advice.

The Dental Solicitors at Ironmonger Curtis LLP are very experienced in advising dentists on heads of terms.  Please contact Trevor or Kate on 0845 225 2635 or by email at info@ironmongercurtis.com for more information.

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