Chris Evans of Morgan LaRoche explains the processes involved in buying premises for a nursery setting, and acquiring a childcare business…
What legal issues should a prospective nursery owner consider when looking for premises?
CE: There are a number of legal issues to consider when purchasing business premises.
Typically, these will include:
■ Considering whether appropriate planning permission is in place to carry out the business from the premises and whether you will need to obtain permission for any ‘change of use’. Also, given that it’s likely that parking spaces will be required to access the nursery, the local authority may consider such factors as part of its review.
■ Various searches, including a Land Registry Index Map search, will be undertaken. Pre-contract enquiries will also be raised with the seller. The results of the searches and the replies to enquiries will need to be reviewed by your solicitor to ensure that there are no issues that could impact the use or future marketability of the property. If you’re considering leasing another premises, either by way of an assignment of an existing lease or the grant of a new lease, there will be a number of additional factors to consider:
■ What are the main terms of the lease, i.e. what is the amount of rent payable and how long will the lease have to run?
■ Will you need to carry out significant alterations to the property before you’re able to commence trading, and are these permitted by the lease?
■ Are there any restrictions on operating particular types of business or the hours of trading?
■ Are there any provisions that would allow the landlord to increase the rent, and when are these increases likely to take place?
■ Does the lease require the tenant to be responsible for all repairs?
It’s also advisable that you instruct a chartered surveyor to undertake a survey of the premises to ensure that there is no major issue affecting the structure or fabric of the premises.
What does the process of buying an existing nursery involve?
CE: Given that you will be making a significant investment when buying a nursery business it’s advisable to instruct professionals such as solicitors and accountants to assist you through this process.
If you’re considering acquiring another business, the structure of the purchase is likely to be either a share sale (if the business is operated through a company) or an asset sale.
Share Purchase If you’re purchasing the shares of a company, you will effectively purchase the company ‘warts and all’. Consequently, it’s advisable that you undertake thorough due diligence into all matters affecting the company. In view of the potential risks associated with
purchasing a company, your solicitor should negotiate that a comprehensive set of warranties are provided to you by the seller, as well as indemnities if any particular
liabilities have been identified during the due diligence process.
Asset Purchase The major benefit of purchasing the assets and goodwill of a business is that you’re able to ‘cherry pick’ the assets that are attractive to you without inheriting any unknown liabilities. It should be noted that the employees of the nursery will transfer on the sale of the business and assets under the provisions known as ‘TUPE’. You will need appropriate legal advice to ensure that you comply with the requirements of ‘TUPE’ such as the obligation to ‘inform and consult’ with the employees, for example.
The key stages involved in the process of buying an existing nursery are listed below:
Heads of Terms
Initially, the principal terms that have been agreed by the parties such as the price and structure of the sale, etc. will be incorporated into the heads of terms. It’s also advisable for a buyer to negotiate an ‘exclusivity period’ at this point. This will provide the buyer with an opportunity to complete the purchase in the knowledge that the seller has contractually agreed not to enter into any negotiations with any other third party to sell the business during that period.
The majority of the time incurred dealing with the acquisition is likely to be spent undertaking due diligence into the business. Particular areas of concern for a buyer will include:
■ Employee-related matters
■ Regulatory and litigation issues
■ Property-related matters
It’s also advisable that a qualified accountant undertakes due diligence into the finances of the business to ensure that it’s a viable investment.
Share Purchase Agreement/Asset Purchase Agreement
Once the buyer is satisfied with the outcome of the due diligence exercise, the parties will then aim to complete matters by entering into the relevant contractual arrangements. The types of contract will depend on the structure of the acquisition. For example, if you’re buying the shares of a company, it will be typically referred to as a ‘share purchase agreement’, or an ‘asset purchase agreement’ if you’re buying the assets of the company. In addition to the warranties and indemnities referred to above, the agreement should also incorporate appropriate restrictions being placed on the seller from setting up a competing business or poaching staff or clients.
How can Morgan LaRoche support anyone thinking of buying or selling a premises or another nursery business?
CE: We’re able to assist clients on all matters of this nature. Typically, we’re instructed at the outset to assist in structuring the deal before undertaking the necessary due diligence and completing the contractual agreements. Whilst the acquisition of a nursery business will be overseen by our corporate and commercial team, we also have teams of lawyers specialising in areas such as property, employment, regulatory and litigation-related matters. Consequently, we’re able to provide a comprehensive level of service to clients in this sector. Morgan LaRoche also has an established track record in the healthcare and daycare sectors and is very familiar with the issues that face businesses in this sector. Our expertise is also recognised in leading client guides to the legal professional such as Legal 500 and Chambers & Partners, for example.
How can nurseries and practitioners find out more?
CE: Please visit our website, morganlaroche.co.uk, or call myself, Chris Evans, on 01792 776 776 for an initial consultation at no cost.