Tips for working with lawyers in a veterinary practice sale10 Dec 2018 - Simon Palmer & Harry Nicolaidis - Business Broker Vet Practice Sales Practice Sale Legals
Once a buyer and seller have agreed to the price and terms of a practice sale, their lawyers’ roles should be straightforward. It should be a matter of documenting pre-negotiated elements of the deal, in a way that both protects their clients’ interests and minimises any potential exposure to risk.
Somehow though, there are too many stories out there of aggravation and frustration directed at the role of the lawyers in a transaction. Why is this? What steps can you take to ensure that the lawyer’s role in your transaction is a welcome and helpful one?
1. Prepare: The devil is in the details
Often, an inexperienced buyer and seller will meet with each other, agree on a price and a date of transfer, and think that the deal is negotiated. They will then take this information to a lawyer and ask them to draw up a contract.
It is important for the buyer and seller to appreciate that, while the price is, of course, essential to the deal, the sale of a vet practice has many more moving parts than just price. In order to streamline a transaction before lawyers are involved, it is useful, where possible, for the parties to have at least considered the following:
- Apportionment between goodwill and equipment (if necessary);
- Restraint of trade (km and years of non-compete and non-solicitation of patients and staff);
- The stock that will be included;
- Adjustments for staff entitlements and other liabilities;
- Post-sale work terms (hours, schedule, pay and frequency); and
- The deal being subject to premises lease assignment or a new lease (almost no vet practice can be sold without security of tenure in the premises).
The deal will usually need some or all of the above details agreed upon and many more. If these issues have never been raised prior to lawyers getting involved, it may delay the transaction and incur additional legal fees.
There is no reason why a buyer and seller can't sit down and put together a solid “Heads of Agreement” that clarifies most of the above variables, before giving the deal to lawyers. The more moving parts that the parties can lock down in advance, the more streamlined and efficient the legals will be. If you engage a good vet practice sale broker, they should be putting together a Heads of Agreement like this for you and your lawyers as part of their service.
2. Don’t take it personally
Senior vets have often expressed that they feel that many protections in a legal document are unnecessary and an insult to their experience and reputation. It is important for such vets to realise that usually these clauses are not directed at any one person in particular. A lawyer inserting a protective clause into a contract doesn’t mean that the other side feels you are untrustworthy, lacking in integrity or clinical skill. It is simply the lawyer’s job to try to protect their client from possible future liability, and they do this by inserting protections into the contract that they feel are necessary. If you are involved in a practice sale and feel surprised by some protective clause that has been put forward, talk to your lawyer and broker before you get upset. They should be able to advise you whether the clause is reasonable and “industry standard”, as well as provide you with an example of the type of situation or risk a particular clause is designed to minimise.
3. Separate out the lawyer from the person you are transacting with
It can be a shock, following the courting stage between a buyer and a seller in the early stages of a deal, for the agreement with the warm, friendly and compatible person they were looking forward to doing business with being reduced to a clinical and formal contract process. Legal writing needs to be direct and to the point, without some of the niceties that may be appropriate in the lead up to the agreement between the buyer and seller.
If you find yourself in this position, it is important to:
- Realise that legal correspondence is by its very nature intended to be direct, clear and factual;
- Realise that each lawyer is there solely to protect his or her client's best interests, and some advance those interests more robustly than others;
- Have an impartial person, such as your lawyer, review the agreement and ensure your interests are protected. This is beneficial to you, as they are able to independently review the deal, free of emotion in a way that can sometimes be difficult for you to be, when you are a party to the transaction; and
- Factor in that a message you have received "from the other side" has passed from the buyer or seller, through each parties' lawyers, before it reaches you. While the message or request may be accurate, there can be a degradation of tone and little explanation for what has been requested.
If your lawyer suggests that you make a significant change to what has been previously agreed upon, or introduces new terms into a contract, it might sometimes be worth picking up the phone and raising these changes directly with the other side, rather than let them be introduced in a lawyer’s letter, where the context and rationale for the introduction can be lost. However, this approach will not always be appropriate, so it is important to discuss this with your lawyer, who has experience in these types of transactions.
4. Make sure you and the other side use a commercial lawyer with experience in vet
Purchasing a vet practice is usually a significant transaction worth several hundred thousand dollars. This is not the time to find the cheapest possible lawyer or to use a mate or family member who is an immigration lawyer, conveyancer or a lawyer that “does a bit of everything”. It is the time to find the most appropriate lawyer that you can find for the transaction, to ensure your interests are protected to the fullest extent possible.
Transactions that are made between commercial lawyers, who have dealt with vet practice sales before, tend to run more efficiently, as both sides readily know which terms are standard, commercial and reasonable. One side using an inappropriate lawyer is more likely to add time, expense and frustration to the transaction.