Buying The Shares Of A Dental Company – What’s Property Got To Do With It?

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Buying The Shares Of A Dental Company – What’s Property Got To Do With It?

Author: Humaira Ashraf

Key Contact: Nataleigh Crebbin

The importance of due diligence

When you are looking to purchase the entire share capital of a company, you will be buying everything that the company owns, including any property.

The company you are purchasing operates from a property and this is factored into the value of the enterprise. Understandably, however, a buyer’s focus will be on the business and financial due diligence – and it is all too easy to forget about the importance of this property.

Yet the property is likely to be the company’s most tangible asset and, if you need financial assistance to purchase the shares, it is likely that some (or all) of the lender’s security will be charged against it. All lenders will therefore require full property due diligence to be carried out.

What is property due diligence?

Property due diligence is the investigation a buyer will carry out prior to purchasing a property. It can include raising standard enquiries from the seller, carrying out searches to establish any liabilities, or instructing a surveyor to establish the condition of the property. It is the responsibility of the buyer to ensure they are not left with a property that turns out to be a costly liability by conducting due diligence.

Searches and Enquiries

Enquiries with the Land Registry are essential to confirm that the buyer is acquiring the property with good title and without any restrictions on how it can be used. Other common searches include:

  1. Local search – this will reveal any land charges that may be registered with the local authority or any planning permissions, including whether the business has consent to use the property as a dental practice. It will also reveal if there are any notices served by the local authority
  2. Drainage search – this will reveal whether the property is connected to a mains water supply and maintained by the local water authority, and whether there are any public drains or sewers running within the boundary
  3. Chancel repair liability search – this will reveal whether the property is within the vicinity of a church, and therefore liable for any potential repairs. While this practice dates back hundreds of years, it can still be enforced – and can be costly. If a liability is revealed, suitable insurance can be put in place to protect a buyer from completion
  4. Environmental search – this search gives details of whether past uses of the property and the land within its locality are likely to have caused any contamination. It also reveals whether the property is at risk of flooding or subsidence, along with information on energy and infrastructure nearby.

Other searches may be recommended depending on the area the property is in – for example, a coal search for a property located above a historic coal mine.

As part of the property due diligence, Commercial Property Standard Enquiries (CPSE1) should be requested from the seller. The CPSE1 replies and subsequent responses to any specific enquiries can reveal valuable information about the property, including whether the seller is complying with their statutory obligations in relation to it. These can include having an up-to-date fire risk assessment, asbestos survey and electrical and gas reports. The buyer has the opportunity to query any adverse disclosures and ask the seller to take any necessary actions before proceeding with the purchase, thereby avoiding what can be significant expense.

Bank funding

If bank funding is required to aid in the purchase of the shares, the bank will want assurances that the property title is good and marketable, requiring a clear certificate of title from the seller’s solicitor as proof. Ultimately, the bank needs to be satisfied that if the property is sold it will sell for its full value, and this can only be established by thorough due diligence.

Conclusion

Detailed and comprehensive property due diligence allows a buyer to gather vital information about the property they wish to purchase, and to deal with any property-related issues before completing. It is an integral part of any share purchase transaction.

For more information, contact Nataleigh Crebbin in our Corporate Healthcare team, at nataleigh.crebbin@acuitylaw.com

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