jason p. wood, ba, jd law offices of wood & delgado · 2019. 4. 30. · hardest entity to...

JASON P. WOOD, BA, JD

LAW OFFICES OF WOOD & DELGADO◦ Firm specializes in representing dentists and

other medical professionals nationwide◦ Over 35 years’ experience in dental field◦ Represented over 6,500 dentists as clients◦ www.dentalattorneys.com◦ (800) 499-1474

Copyright © 2004-2019 Wood & Delgado, all rights reserved

http://www.dentalattorneys.com/

If you are the Associate? Don’t push for a written contract if the Owner hasn’t given you one◦ Written Contracts benefit the owner

◦ Restrictive Covenants are only enforceable if there is an agreement


Employee v. Independent Contractor


Compensation◦ Production or Collection

◦ Per diem

◦ Hybrid


Term of the Contract◦ Typical duration is one year (although some ortho

and corporate dentistry contracts can be as much as 3 years)

At-Will Employee v. Contracted Employee


RESTRICTIVE COVENANTS◦ Covenant Not to Compete

◦ Covenant Not to Solicit

◦ Covenant Not to Solicit/Hire Employees

Are they enforceable?


A Covenant Not to Compete is enforceable during the duration of the Contract, not after the termination or the expiration in some states, however most states will allow CNTC for a reasonable period of time/radius

No Written Contract, no enforceable covenant

Other Restrictive Covenants are enforceable by inserting a provision into your Associate Agreement. Any ideas?


Trade Secret Information◦ Most important provision in an Associate

Agreement

◦ Catch-all

◦ Alternative to state public policy that does not recognize restrictive covenants

◦ Courts will vigorously protect trade secrets, provided that the Owner keeps them… secret


Economic vs. “Lifestyle” choice

Facility Management

Efficiency issues


Hardest entity to continue

Also, the most rewarding if successful

Make sure it is in writing

Buyout provisions

Death/disability issues

Valuation concerns


50/50 v. Majority/Minority Partnerships◦ He/She only has 51%, I have 49%

Much more complex agreement needs to be drafted to protect minority partner


Hardest entity to continue

Also, the most rewarding if successful

Make sure it is in writing

Buyout provisions

Death/disability issues

Valuation concerns

Cheap Way – one entity, shareholder agreement between shareholders/owners◦ Yearly tax concerns◦ Future sale concerns◦ Liability issues

Correct Way – multiple entities, either a partnership agreement or an operating agreement between partners/owners◦ Each owner has maximum control over their own

yearly taxes◦ Easier sale in the future, especially for harder to sell

practices


Various scenarios◦ Many different “ideas” in the market

◦ Unfortunately, many unfairly harm one party

◦ Ownership concerns for Owner

◦ Property “vesting” concerns for Associate

Copyright © 2004-2019 Wood &

Delgado, all rights reserved

Purchase Price◦ When should this be established?



Tax Ramifications◦ You

◦ Owner



Decision Making Authority◦ Day-to-day operation?

◦ Large capital expenditures?

◦ Personnel decisions?



Most overlooked issue by dentists

If you have an ownership interest you need to know your lease◦ Applicable for Associate Buy-in, Partnerships, Start

Ups and Practice Acquisitions

Standard Leases◦ There is a reason why they are “standard”

New Lease v. Assuming an Existing Lease◦ Different problems require a different approach


NNN Lease versus Gross Lease


Rent◦ Base Rent

◦ CAM charges

◦ Base Year


Options◦ Personal to you

◦ How is rent defined?


Dental Exclusives


Damage/Destruction of Office


Relocation Rights


Death/Disability


UNSCRUPOLOUS LANDLORDS◦ Landlords are increasingly attempting to utilize the

lease to capture portions of the sale proceeds from dental practice sales

The trend is even corporate landlords are attempting to extract money from tenants

◦ How do they do this?


◦ Assignment and Subletting Language “If Landlord consents to an assignment or subletting of

the Premises, Landlord shall be entitled to receive 50% of any consideration received by Tenant in excess of the Base Rent payable to Landlord under this Lease.”

◦ Recapture Clauses If the Seller requests an assignment of the Lease, the

Landlord has the right to “recapture” the Premises.

◦ Personal Options Lenders will generally require a certain amount of years

left on the lease prior to agreeing to fund. Leases generally state options are personal, Seller needs to request the options to be “assignable” to the Buyer.


Purchase Price of Practice: $1,100,000.00 Collections: $1,450,000.00 Seller moving to Indiana, in escrow for new dental

practice House in escrow Buyer had loan approval for $1M, brought $200K to

the table Lease: 1 ½ years left, 2 – 5 year options remained Landlord consented to the assignment but not the

transfer of options Landlord “requested” $100,000 to assign the

options or draft a new lease for the buyer Result: Seller paid the Landlord $50,000 to sell the

practice and have a new lease written for the buyer. And the Landlord was. . .see the above case!


Purchase Price: $750,000 Collections: $1,150,000 Approved Loan: $850,000 Seller moving out of state, sold house Lease had 9 years remaining plus 1 – 5 year

option Options were assignable No excess consideration language Slam dunk sale


Lease provided:◦ “Upon a request for an assignment or subletting,

Landlord shall have the right to accept the assignment, deny the assignment or recapture the Premises and terminate Tenant’s lease.”

Important to note: THIS PROVISION “KICKS IN” WHEN THE SELLER ASKS FOR AN ASSIGNMENT. (i.e., be careful how you “ask”)

Outcome: Seller paid the landlord $$$$ to waive the recapture clause.


Seller not being released from liability Landlord permitted to adjust rent to market

rate upon assignment◦ This may result in a reduction in purchase price

or otherwise slow the deal down

Rent for option periods “illusory”◦ “Landlord shall establish rent for the option

period in Landlord’s sole discretion. If Tenant does not accept Landlord’s determination, the option shall be null and void and this Lease shall terminate at the end of the existing term.”

Landlord’s consent to an assignment shall be in Landlord’s sole discretion


Goodwill◦ What am I acquiring?

◦ How do I protect it?


Work in progress


Patient Credits◦ Dental Board issues

◦ Financed Treatment Programs/Plans


Associate Dentists


Redo work◦ State Statute of limitations

◦ Continued Goodwill of the dental practice


Purchase Price Allocations◦ Get a dental CPA

◦ Assume a $500,000 dental practice sale

Buyer’s perspective

Seller’s perspective


Employees◦ When to advise employees of sale

◦ At-will employees


Accounts Receivable


Seller’s representations and warranties◦ Some examples

No liens

No lawsuits

No Dental Board action

Information from Seller is accurate


Referral Sources


Inventory of Equipment


Restrictive Covenants


Use of Seller’s Name

“Name on Door” Insurance

Completion of Work

Redo Work

Scope of Covenant


If you have a small practice the answer is no

We typically like to see more than $1,000,000 in yearly collections prior to even considering a work back agreement◦ Why this number?

Are you prepared to reduce your purchase price in exchange for long term employment?◦ Especially if you do not have enough collections


Many advisors (especially brokers) will tell you no, not until the purchase agreement has been signed or the actual closing date

Staff are concerned about one thing: job security

If they are worried they will be let go, they will actively search for another job

If a key person leaves before you sell, that could harm your ability to sell

If a staff member has the “gift of gab” the whole town will know before you even have a buyer


Visit our website or call our office if you have any future questions:

(800) 499-1474

www.dentalattorneys.com

www.twitter.com/dentalattorneys


http://www.dentalattorneys.com/

www.twitter.com/dentalattorneys

jason p. wood, ba, jd law offices of wood & delgado · 2019. 4. 30. · hardest entity to...

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