The legal issues involved in selling a practice can be complex and daunting. But systematically going through questions and concerns can help form a plan
Buying and selling property is often a costly and demanding experience, which is the same for all general practitioners. Below, key concerns are covered that are raised throughout the buying and selling process, and what your obligations are.
Q Do I/we have the right to sell our existing property or do we need the involvement of third parties?
A Whether you do or don’t will depend on what it says on the legal title to your property and within your partnership deed. It is important to provide these to your solicitor and the agent upfront, so that they are aware of which partners need to agree and sign the legal documents. It is not unusual to find that third parties may have to be involved in your sale of the property. For example, if you have a mortgage on your existing property then the bank will need to be involved and your solicitor will have to liaise with them.
Q I am concerned about the deposit for the new property. Is it possible for the deposit to be less than 10%?
A It is possible to agree that the deposit will be less than 10%. But if this is the case then the contract will standardly provide for the deposit to be made up to 10% if the buyer fails to complete on the specified completion date, unless you agree otherwise. You would need to notify your surveyor from the outset that this is how you wish to proceed.
Alternatively, if you need the deposit from the sale of your current premises to fund the purchase of your new premises, you could agree with your buyer that your solicitor holds the deposit as ‘agent’. This means that your solicitor can use the deposit from the sale of your existing premises to fund the purchase of the new premises. Again, this is something that you should mention to your surveyor at the outset.
Q How long is the sale likely to take and why does it take that long?
A One of the most frustrating aspects of the buying and selling process is the timescale. It is worth having a realistic view of this at the outset. You need to consider that both your solicitor and the buyer’s solicitor will need to undertake various standard conveyancing searches from third parties, and that you will have to provide practical information about the property.
These searches are important as they reveal issues that your solicitor will not be able to tell from reviewing the deeds to the property, such as whether it is connected to the necessary utilities; whether it is subject to potential chancel repair liability; if the correct planning permissions are in place; if the property is affected by issues such as subsidence from coal mining.
In light of this, the most rapid turnaround times for purchase or sale are typically four weeks. If you need to sell your property more quickly than this then it might be worth considering engaging your solicitor prior to identifying a buyer, and asking them to undertake these searches on your property so that they can provide the buyer with a copy of these immediately. If you notify your surveyor that this is the way in which you wish to proceed, they will ensure that the terms of any sale are such that you recoup the cost of these searches on exchange of contracts. You could also consider asking your solicitor to draft the contract and transfer upfront, ensuring the purchaser of your property is provided with the exact terms of the deal on which you wish to sell at the outset, which generally cuts down the time it takes to complete a transaction.
Q Can I ensure that the sale of my existing property and purchase of the new property complete at the same time?
A From a practical perspective it is likely that you will wish to complete the sale of your existing premises and purchase of the new premises on the same date. Therefore, it makes sense to instruct the same solicitor to deal with both transactions as the legal documents will need to be interlinked ie, ‘conditional’, as you will want to make sure that the sale cannot complete without the purchase and vice versa.
It may be that in order to do this you will need some flexibility built into the contracts in relation to the completion date. If there is no provision for this you will become subject to additional costs and liabilities from the other party who has not defaulted. Joining the two transactions in this way is not a particularly straightforward matter, which is likely to increase the fees as you will be paying a solicitor to do this for you. It is worth considering using a firm who is experienced in these matters.
Q What is the position on VAT?
A Generally, subject to certain exceptions, a supply of commercial property such as a GP surgery is an exempt supply for VAT purposes – meaning that no VAT is due on the consideration. However, certain commercial property transactions are standard rated supplies, which means that VAT is due on the consideration, so it may be worth speaking to your accountant on this matter at the outset.
Q What is the position on insurance?
A From the exchange of contracts the default position is that a property is at the buyer’s risk. This means that if there is any damage to the property between exchange and completion, the buyer is not entitled to any reduction in the purchase price or to refuse to complete or delay completion by reason of any damage caused to the property, any deterioration in its condition, or indeed, even the total destruction of the property. However, the fact that the risk in the property passes to the buyer on exchange of contracts does not mean that the seller should not insure during the period between exchange and completion. The buyer and the seller have separate insurable interests in the property between exchange and completion; for instance, the seller needs to protect itself in the event that there is damage and the buyer fails to complete.
Q We would like to take some furniture with us to the new premises that is fixed to the floor – is this possible?
A Legally, where furniture is fixed to the floor then it is likely to be classed as something that will be sold with the property and forms part of the property, unless you tell your solicitor otherwise.
If you wish to take any such items with you then you should ensure that you notify your agent and solicitor at the beginning of the transaction.
Q Are there any legal issues we should be concerned about in relation to new premises?
A One of the main things to get checked is whether there are any restrictions on what the property can be used for, these are known as restrictive covenants.
It is quite common to find that property is subject to restrictive covenants. However, provided that your use is not one of the excluded uses it should not affect your occupation of the premises. If you find that your use of the premises is excluded then you will need legal advice straight away as it is a very technical area of law and not all covenants are enforceable.
Of course, there are many challenges involved in the buying and selling of commercial premises, but considering these key aspects will give you a helping hand in steering your way through the legal process.
Andrea Proudlock, associate – real estate DAC Beachcroft LLP.