The private sector makes up the majority of care home places in this country and with increasing demands caused by an aging population many companies and individuals are now considering investing in the care home market.
What are the important legal issues that need to be considered in connection with such a purchase over and above the normal matters that need to be dealt with when buying a property and a business?
Registration and Regulation
First and foremost are the registration and regulation aspects. It is an offence for a person to carry on or manage a care home business without being registered by the Care Quality Commission (CQC). Any buyer therefore needs to apply to the CQC for registration and the process is likely to take something in the region of 8-10 weeks.
One slightly odd fact is that the CQC will not grant the necessary registration until the person or company actually owns the care home. Obviously, no one is going to want to commit to purchase a business only to find that they cannot then operate it. The issue is usually overcome by the CQC at the end of their investigations providing a “comfort letter” confirming that registration will be granted following completion.
A buyer can therefore either wait for the comfort letter from the CQC before exchanging contracts or can exchange conditional on the comfort letter being received.
Many care home sales now proceed as share sales (i.e. the seller sells a company rather than the care home itself) and this will simplify the registration procedure because the company being purchased will usually already be registered.
Once the care home is acquired, it will be the responsibility of the new owner to comply with all the relevant essential standards of quality and safety. An important part of the buying process is, therefore, asking the right questions during the transaction to ensure that the business is fully compliant and that there are no issues that would cause regulatory or operational difficulties after completion.
Any buyer of a care home should pay particular attention to the existing planning permissions that affect the property. Conditions limiting the number of residents are fairly common and are often overlooked when care homes are later extended. This can leave an operator technically in breach of a planning condition.
A lot of care homes are not purpose built homes but are converted residential properties. These often have restrictive covenants preventing businesses from being operated from them and this type of covenant may need to be insured against, unless there is good evidence that the covenants have been breached for so long that they are now unenforceable.
It is in the nature of care home businesses that they can benefit considerably from tax savings by the correct utilisation of capital allowances. Any purchaser of a care home, in addition to obtaining good legal advice, should seek specialist tax advice to ensure that capital allowances are properly dealt with in the contract so that the valuable tax benefits are not lost.
There are significant employment issues that uniquely affect care homes, such as the impact of the working time and minimum wage regulations for staff who regularly sleep on the premises and issues caused by the employment of non-EU workers. Any purchaser of a care home should, therefore, make sure they receive proper employment law advice in respect of the members of staff they will be taking over on completion of the purchase so that they are clear what their statutory obligations are.
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