Selling a practice can be a complex process with numerous legal and financial implications. Therefore, it is critical to have a comprehensive and legally binding agreement that outlines the terms and conditions of the sale. Let’s focus on a common type of sale agreement, known as a Practice Sale Agreement (PSA). The PSA is a legally binding document that governs the terms and conditions of the sale of a practice (being its goodwill and assets).

A Practice Sale Agreement should include the following key clauses:

1. Purchase Price and Payment Terms: The purchase price is one of the most critical elements of a PSA. It is essential to include the purchase price, payment terms, and any deposit or escrow arrangements. The PSA should also detail the payment schedule, including the timing and method of payment.

2. Transfer of Practice Assets: The PSA should specify which assets are being sold as part of the transaction. This clause (or via separate schedule) should include a detailed list of the assets, including equipment, stock, intellectual property, and patient/client lists.

3. Liabilities and Indemnities: The PSA should clearly state which liabilities, such as outstanding debts or employee entitlements, are being transferred to the purchaser. It should also include indemnities to protect both parties from any future claims or lawsuits.

4. Restrictive Covenants: A restrictive covenant is a PSA clause that restricts the vendor from competing with the purchaser's practice or soliciting it’s patients/clients for a specific period after the sale. The PSA should outline any restrictive covenants to protect the purchaser's investment and the goodwill of the practice.

5. Confidentiality and Non-Disclosure: The PSA should include a confidentiality and non-disclosure clause to protect the sensitive information and trade secrets of the practice. This clause should specify that the purchaser cannot disclose any confidential information to a third party without the vendor's prior written consent.

6. Warranties: The vendor should provide warranties about the practice to the purchaser. These warranties should cover areas such as the accuracy of financial statements, the condition of assets being sold, and compliance with legal requirements. These warranties help to protect the purchaser from any misrepresentations made by the vendor. Depending on the vendor entity, personal vendor warranties need to be considered.

7. Completion Date and Conditions: The PSA should specify the completion date and conditions that must be met before the sale can proceed. These conditions may include obtaining finance, transfer of licenses, or approval from landlords.

A Practice Sale Agreement is a critical document that outlines the terms and conditions of the sale of a practice. It should include clauses that cover the purchase price, transfer of assets, liabilities, restrictive covenants, confidentiality, warranties, and completion date and conditions – these are all commercially reasonable clauses. A well-drafted PSA protects the interests of both the purchaser and vendor and provides a clear understanding of the transaction's terms and conditions. It is important to seek legal advice when drafting a PSA to ensure that all legal and financial implications are addressed.

Practice sale agreements are legally binding contracts that govern the terms and conditions of a sale of the practice. There are different types of practice sale agreements, each with its own legal implications. In this blog, we will explore these different types of agreements and their legal implications.

1. Practice Sale Agreement (PSA) – A PSA is a type of sale agreement that involves the sale of the assets of a practice. These assets typically include the goodwill, plant and equipment, intellectual property, and patient lists, etc. The PSA is generally used when the purchaser is purchasing all practice assets (rather than buying into a company/trust).

2. Asset Sale Agreement (ASA) – An ASA is a type of practice sale agreement that involves the sale of specific assets of a practice. These assets may include plant and equipment, intellectual property, and patient lists. The ASA is generally used when the purchaser is purchasing specific assets (for instance solely the practice’s plant and equipment and no goodwill). This type of agreement can be advantageous to the vendor (practice owners) as it allows you to keep any assets/liabilities of the practice, however, offload specific assets.

3. Share Sale Agreement (SSA) or Share and Unit Sale Agreement (SUSA) is a type of sale agreement where the purchaser purchases the shares of a company (and/or units in the trust). These sale agreements are typically used when a percentage of the practice is being sold – for instance a 50% sale. In this case, the purchaser acquires 50% of the company/trust assets (shares and units – which subsequently owns the goodwill/plant/equipment) and potentially takes on 50% of the liabilities of the company/trust.

4. Partnership Sale Agreement or Associateship Sale Agreement are similar types of sale agreements to the SSA or SUSA, however do not commonly involve ASIC requirements for share transfers.

5. Roll-over/Restructure Agreement is a type of agreement, commonly for internal practice restructures. The vendor and purchaser are usually related and the vendor is streaming assets into a new entity for certain purposes.

Legal Implications

Each of these types of sale agreements has its legal implications. The legal implications will depend on the type of sale agreement and the specific terms of the agreement. Some legal implications that need to be considered include:

1. Transfer of Ownership - In all types of practice sale agreements, the transfer of ownership from the vendor to the purchaser must be clearly stated. The agreement should include the specific assets or shares/units that are being sold and the price being paid for them.

2. Liabilities and Indemnities - The sale agreement should clearly state which liabilities, for example employment entitlements, are being transferred to the purchaser. It should also include indemnities to protect both parties from any future claims.

3. Key people contracts / employment contracts - In some cases, the key people / employees of the practice being sold may be transferred to the purchaser. The agreement should include details of the transfer of employment contracts and any employee entitlements.

4. Landlord approvals – subject to the type of sale agreement, there may be specific landlord approvals required for the sale of a practice to a new tenant entity or variations to the lease to include a new 50% owner as a guarantor of the tenant entity. The sale agreement should include details of who is responsible for obtaining the approvals and their relevant costs.

Practice sale agreements come in different types, each with its legal implications. When entering into a practice sale agreement, it is important to seek legal advice to ensure that the sale agreement adequately reflects the terms and conditions of the sale and protects both the vendor and the purchaser’s interests.

Feel free to contact Julian Whitehead – Partner on 0411 406 151 or julian@whiteheadlegal.com.au.