Selling a medical, dental or imaging practice is not a single transaction. It is a business sale, a lease assignment, an employment transfer and, increasingly, a tax structuring exercise, all settling on the same day. Buyers of practices are usually paying for goodwill they cannot see, and sellers are usually surprised by how much of the price is tied to things they have never documented. This is the checklist we work through with both sides.
What is actually being sold
Most practice sales are asset sales rather than share sales: the buyer acquires the goodwill, plant and equipment, patient records, the benefit of the lease and sometimes stock and work in progress, but not the selling entity itself. Share sales are less common because the buyer inherits every liability of the company, known and unknown. Which structure is used affects the tax outcome for both parties significantly, so it is a decision for the accountants and lawyers together, early.
The lease is usually the most valuable asset
A practice without premises is worth a fraction of a practice with them. The sale therefore hangs on whether the lease can be assigned to the buyer, and on what terms. Before going to market, a seller should check: the remaining term and options; whether assignment requires landlord consent and on what basis it can be refused; whether the landlord can impose conditions such as a new bank guarantee or a rent increase; who pays the landlord’s costs; and (the one sellers most often miss) whether the seller’s personal guarantee is released on assignment. Under many standard leases it is not, which means a seller who exits the practice remains liable for rent for years. If an option is available, exercising it before the sale can add real value. See our guide to leasing medical premises.
Goodwill, restraint and the transition
In a practice sale, goodwill is largely personal to the practitioners. A buyer is paying for patients who may follow the seller out the door. That is why every practice sale contains a restraint of trade, typically a radius and a period during which the seller cannot practise nearby or solicit patients and staff, and usually a transition or handover period during which the seller continues to work in the practice and introduces patients to the incoming practitioner. Restraints are enforceable in Victoria only so far as they are reasonable to protect a legitimate business interest, which is why they are drafted as cascading clauses (for example three years, two years or one year; ten kilometres, five kilometres or two kilometres), so that a court can enforce the largest reasonable combination. Both sides should negotiate these terms on the facts, not accept the precedent.
Patient records and privacy
Health records carry obligations under the Privacy Act 1988 (Cth) and Victoria’s Health Records Act 2001. Records can be transferred with the practice, but patients must generally be notified, and the buyer takes on the obligation to hold and provide access to them. The contract should deal with who holds the records, who is responsible for historical requests, how long the seller can access records for indemnity or medico-legal purposes, and what happens to records of patients who do not continue with the practice. For imaging practices, this extends to PACS archives and image storage arrangements, which may sit with a third-party provider under a contract that itself needs to be assigned.
Staff
In an asset sale, employees are not automatically transferred. The usual mechanism is that the seller terminates employment and the buyer offers new employment recognising prior service, with accrued leave either transferred as an adjustment to the price or paid out by the seller. Get this right: unrecognised service entitlements are a common post-settlement dispute. Contractor practitioners (most commonly under service agreements) do not transfer at all. The buyer needs new agreements with each of them, signed before settlement, or it may be buying goodwill that walks. Our article on room licences and service agreements covers the structures involved.
Regulatory approvals and provider numbers
Several approvals attach to the practitioner or the entity, not the practice, and cannot simply be sold. Depending on the discipline these can include Medicare provider numbers, practice accreditation, radiation management licences for imaging and dental practices, drug and poisons permits, and any approval that names the licence holder. The contract should be conditional on the buyer obtaining what it needs, with a long-stop date, because some approvals take months.
Equipment: owned, leased or financed?
Imaging and dental equipment is frequently subject to chattel mortgages, equipment finance or operating leases, and those interests are registered on the Personal Property Securities Register. A buyer must search the PPSR and require releases at settlement; a seller must arrange payout figures. Service and maintenance contracts, software licences and warranties also need to be assigned. A CT scanner without a current service contract is a liability, not an asset.
Price, and how it is paid
Practice sale prices are commonly structured with a deposit, a payment at settlement and a retention or earn-out tied to the practice maintaining billings through the transition. If there is an earn-out, define precisely how billings are measured, who controls the practice during the measurement period, and what happens if the buyer changes fees or hours. Ambiguity here produces most of the litigation in this area.
For sellers: what to do twelve months out
- Check the lease term, options and assignment provisions, and exercise an option if available.
- Put every practitioner and key employee on a signed, current agreement.
- Clean up the PPSR position on equipment.
- Get the financial records into a state a buyer can verify.
- Take tax advice on the sale structure: small business CGT concessions and retirement exemptions can be worth a great deal, and eligibility often depends on things you can still fix.
Empower Legal Solutions acts for buyers and sellers of medical, dental and allied health practices across Melbourne, with pricing disclosed before you engage us. Book a free first consultation.
Frequently asked questions
How long does a practice sale take?
Typically two to four months from heads of agreement to settlement. The critical path is usually landlord consent to the lease assignment and any regulatory approvals the buyer needs, both of which can take longer than the commercial negotiation.
Is a restraint of trade enforceable against a departing practitioner?
It can be, to the extent it is reasonable to protect the goodwill that was bought and paid for. Courts look at the radius, the duration, the nature of the practice and the practitioner’s role. A clause drafted with cascading alternatives has a better chance of partial enforcement than one that is all or nothing.
Who owns the patient records after a practice is sold?
Whatever the contract provides, subject to privacy and health records law and the practitioner’s professional obligations. In most asset sales the records transfer to the buyer, patients are notified, and the seller retains a right of access for medico-legal purposes. It should be documented, not assumed.