A letter of intent (“LOI” and, sometimes, memorandum of understanding (“MOU”)) is a crucial document in the sale of a dental practice–or any practice for that matter, laying the groundwork for the transaction. As an attorney working in healthcare law, I emphasize the importance of drafting a comprehensive LOI that outlines the key terms and conditions of the sale. In this blog post, I’ll provide insights into the legal aspects of LOIs in dental practice sales.
Key Components of a Letter of Intent
1. Purchase Price and Payment Terms: Specify the purchase price, payment structure, and any adjustments based on due diligence findings.
2. Assets Included in the Sale: Clearly identify the tangible and intangible assets being sold, including equipment, patient records, and goodwill.
3. Due Diligence Requirements: Outline the due diligence process, including access to financial records, patient records, and contracts.
4. Post-Closing Employment: It is critical to negotiate the general terms of post-closing employment, if any, at the LOI stage. What will the term of engagement be? What is your compensation? What are your responsibilities?
5. Transition Services: In every practice sale, there is some cooperation needed after the sale between the buyer and seller to properly transition the business. In the dental space, we call such assistance “transition services,” which are the seller’s obligation to assist in the transfer of the goodwill. It is imperative to negotiate the length (weeks? months?), content (non-clinical? clinical?), and form (in-office? by phone and text? by email?) of such services. Transition services are generally uncompensated.
6. Retreats and Warranties: Decide from the beginning how long the seller will warranty treatment completed prior to closing and what the compensation will be in the even a retreat is required.
6. Restrictive Covenants: The duration and geographic area of a seller’s restrictive covenants should be set in the LOI.
7. Non-Binding Nature: Clarify that the LOI is non-binding, except for specific provisions such as confidentiality and exclusivity.
8. Timeline for Closing: Set forth a timeline for completing due diligence, negotiating the purchase agreement, and closing the transaction. The timing should be set in consultation with the parties and any third-party lender. In this way, it will be more realistic and less likely to cause frustrations down the road.
Legal Considerations
1. Non-Binding Nature: While an LOI is generally non-binding, certain provisions such as confidentiality and exclusivity may be enforceable. Careful drafting is essential to avoid unintended legal obligations.
2. Confidentiality: Include provisions requiring both parties to maintain the confidentiality of information exchanged during the due diligence process.
3. Exclusivity: Consider whether the buyer will have exclusive rights to negotiate with the seller during a specified period, and include provisions to protect the seller’s interests if negotiations fall through.
4. Dispute Resolution: Address how disputes arising from the LOI will be resolved, including mediation, arbitration, or litigation.
In summary, a well-drafted letter of intent sets the stage for a successful dental practice sale by clearly outlining the parties’ intentions and expectations. By working with experienced legal counsel, sellers and purchasers can navigate the LOI process with confidence and lay the foundation for a smooth transaction.