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Buying a dental practice in California can be a smart move for your career and financial future, but it’s not without risks. While the numbers on paper may look promising, hidden legal issues can turn an attractive deal into a costly mistake. Below are some of the most common legal issues to watch for when evaluating a dental practice for purchase.
Problematic Lease Terms
The office lease often makes or breaks the value of a dental practice. If the lease terms are vague or unfavorable, you could be setting yourself up for headaches down the road. Common issues include:
- Short lease terms or no renewal options that put long-term stability at risk
- Unexpected rent increases that cut into profitability
- Restrictions on transferring the lease if you decide to sell later
- Onerous clauses, such as relocation or redevelopment clauses, that can force you to move the practice
Before signing the lease or lease assignment, you need to determine whether the lease supports your long-term investment goals. If the landlord is unwilling to negotiate or clarify, it’s a sign to pause and reconsider.
Undisclosed Liabilities
It’s not enough to look at revenue and the number of active patients. A dental practice may also carry debts or obligations that aren’t immediately obvious. These can include:
- Liens on equipment or equipment leases
- Pending lawsuits or regulatory investigations
- Patient refunds or credits that must be honored
If these liabilities aren’t disclosed, they can quickly hamper your new practice. A thorough review of the purchase agreement, including having the seller provide adequate disclosures of potential problems, helps uncover obligations that could otherwise be passed on to you.
Staff Contract Issues
Employees are often the backbone of a dental practice. Keeping them on board can make the transition smoother and help preserve patient trust. However, problems can arise if staff contracts are unclear or outdated.
- At-will employment misunderstandings may leave you exposed to wrongful termination claims
- Promises of bonuses or benefits made by the seller but not documented
- Misclassification of employees as independent contractors can lead to penalties
Before you finalize a deal, review employee files, contracts, and HR policies. This helps you understand your obligations and spot risks that could lead to disputes.
Outdated Equipment Clauses
Dental equipment is a significant component of a practice’s value, and it’s often specified in the purchase agreement. Problems can arise if the contract doesn’t specify the condition of the equipment or leaves you stuck with outdated technology. Possible issues to look out for include:
- No warranties or representations about the working condition of the equipment
- Failure to list specific equipment included in the sale, leading to disputes about what actually transfers
- Failure to disclose shared equipment or expensive handpieces can lead to unintended disputes after the closing
Replacing or repairing equipment can cost hundreds of thousands of dollars. Ensure the agreement clearly identifies each item, states its condition, and outlines who is responsible for repairs.
How Legal Counsel Helps You Spot Red Flags
It can be difficult to identify these risks on your own, especially when a seller is eager to close. That’s where working with an attorney who understands dental practice acquisitions makes a difference. At Polished Legal, we will:
- Review contracts for vague or one-sided terms
- Ensure that liabilities and obligations are properly disclosed
- Clarify your rights under California law regarding leases, staff, and equipment
- Negotiate changes that mitigate risks and better protect your interests
Protecting Your Investment
A dental practice purchase is more than a business transaction; it’s the foundation of your professional future. Taking the time to uncover hidden risks helps ensure that what appears to be an opportunity doesn’t turn into a liability.
At Polished Legal, we help Los Angeles dentists buy and sell practices with confidence. If you’re considering an acquisition, reach out to us for guidance. We will review the agreements, flag potential problems, and help you move forward with clarity.
