The Dental Practice Letter of Intent (LOI)- 12 Essential Terms For a Successful Practice Transition

12 Essential Terms to Include in a Dental Practice Letter of Intent

For dentists seeking to buy or sell a practice, crafting a well-defined Letter of Intent (LOI) paves the way for a smoother transaction.

Here are twelve key terms to include in a Dental Practice Purchase LOI:

1. 1. Identification of Parties: Clearly state the names of the buyer and the seller, along with their respective entities (if applicable), and the address of the dental office for sale. If the buyer has yet to establish an entity, use language like “Buyer’s Name, or an assignee entity to be formed by Buyer prior to Closing.”
   2. Assets Included: Define what assets are included in the practice purchase, along with any assets that the seller specifically excludes. A general phrase such as “all tangible and intangible assets used in the income generation of the practice” is often sufficient.
   3. Definitive Purchase and Sale Agreement: Include a provision indicating that there will be further negotiations and documentation before the closing. This statement reflects the understanding that a detailed purchase agreement still needs to be prepared and approved. Here is some sample language ” The transaction contemplated under this LOI will require further documentation and approvals, including the preparation and approval of a formal purchase agreement setting forth the terms and conditions of the proposed purchase in more detail, but Buyer and Seller execute this letter to evidence their intent to proceed in mutual good faith to carry out the Transaction substantially in the manner outlined herein.” 
   4. Purchase Price: Define the purchase price clearly. If there are agreed-upon terms for seller financing, ensure they are explicitly stated.
   5. Deposit and Escrow: If a deposit is required, clearly state the deposit amount, along with the terms for its return or forfeiture. If using an escrow, include the contact information of the escrow company, stating who will bear the escrow fees.
   6. Closing Date: Specify the anticipated closing date to guide the parties and their advisors towards a timely closing.
   7. Contingencies: Contingencies are conditions that must be met before finalizing the sale. Common contingencies include (but are not limited to) the 1) buyer’s right to conduct due diligence, 2) Buyer’s right to securing lending on favorable terms, 3) buyers right to obtain a lease assignment, new lease, or purchase the real estate associated with the practice, and 4) ensuring the practice operates normally prior to closing.
   8. Covenants: Include a clause stating that the Seller will agree to a non-compete and non-solicit agreement, preventing them from luring away patients and employees post-sale. In addition, if already agreed upon, state the duration of the covenants and the applicable radius from the practice.
   9. Governing Law: State the jurisdiction that will govern the LOI in case of a dispute, This is usually the state where the Seller’s practice is located.
   10. Costs: Include a statement that each party is responsible for their respective costs associated with the transaction. If there is a broker involved in the transaction, you may want to include who the broker is representing and who is responsible for paying their commission.
   11. Exclusivity: Clarify whether the seller can market the practice to other potential buyers after signing the LOI.
   12. Seller’s Post-Close Obligations: If the seller is expected to provide services post-close (like working in the practice or aiding in the transition), specify this arrangement and the associated compensation.

Including these key terms in your Dental Practice Purchase LOI will ensure clarity and mutual understanding between the buyer and seller, paving the way for a smoother transaction process.

**This list is not all inclusive and is for education purposes. Each practice transaction is unique and each letter of intent should be drafted by a qualified attorney who is aware of the specific facts of the deal. Always remember to consult with an experienced dental attorney when drafting or reviewing an LOI to ensure all potential issues are properly addressed.

Binding vs. Nonbinding Terms In a Dental Practice Letter of Intent

When drafting a Letter of Intent (LOI), it’s crucial to understand the difference between binding and nonbinding LOIs. A binding LOI legally obligates both parties to follow its terms. In contrast, a nonbinding LOI serves as a framework for negotiations, allowing for adjustments as necessary. Nonbinding LOIs are particularly useful during the due diligence process, where factors such as patient records, equipment condition, and financials can influence the final purchase price.

Typically, in a Dental Office Letter of Intent, certain provisions, like confidentiality and exclusivity, are binding, while other terms, like purchase price and closing date, remain nonbinding until the final purchase agreement is signed.

Still confused? Hiring a dental lawyer during the due diligence process when considering binding versus nonbinding terms for a dental practice LOI can offer several benefits:

Expertise in Dental Transactions: At Odgers Law Group, we have over eight years of experience focusing on dental transactional law. Our specialized knowledge ensures that dental practice transactions, including Letters of Intent, are tailored to your specific needs and comply with relevant regulations.

Negotiation and Drafting: With experience negotiating for over 600 clients, we can clearly define and legally secure important provisions, such as confidentiality, exclusivity, and good faith agreements, before you sign any document.

Mitigation of Risks: The due diligence process can be complex, with potential issues such as hidden liabilities, time constraints, and regulatory compliance. Our extensive experience with Letters of Intent allows us to identify legal issues early in the due diligence process, helping to avoid costly disputes or even the failure of the transaction.

Who Drafts the Letter of Intent in a Dental Practice Transaction?

Typically, the buyer or the buyer’s attorney drafts the Letter of Intent (LOI) in a dental transaction. This allows the buyer to set the initial terms and conditions for the practice purchase based on their understanding of the dental office and their negotiations with the seller or the seller’s broker.

With that being said, there is no hard requirement that the buyer draft the LOI.

In fact, many times the Seller’s broker will give the buyer a pre-populated letter of intent with terms that the Seller is ready to accept. The buyer and the buyers attorney, then will review the draft, make any revisions, and sign and submit it to the Seller.

The LOI is then sent to the seller for review. If the seller agrees with the terms laid out in the LOI, they can sign it, signaling their agreement to continue with the transaction under those terms. If the seller disagrees with any of the terms, they can negotiate and suggest changes.

At Odgers Law Group, we have extensive experience with Letters of Intent. We prioritize negotiation as a crucial step in drafting these documents to ensure a smooth transaction for both parties. By choosing our firm, you can trust that we will focus on creating a clear and fair agreement from the outset.

When to Submit a Dental Practice Letter of Intent When Buying a Dental Office?

A Dental Practice Purchase Letter of Intent is usually submitted after initial discussions and once the potential buyer has reviewed the practice’s basic financial information.

The LOI represents a serious commitment on the part of the buyer, and thus, it’s important to be sure you’re ready to move forward with the transaction before you submit your LOI.

Summary of Submitting a LOI for a Dental Office

In conclusion, a Letter of Intent is an essential step in the purchase of a dental practice. It lays the groundwork for negotiations and signals serious intent from the buyer.

Always consult with your legal and financial advisors when drafting a Letter of Intent to ensure that you fully understand the implications and commitments being made.

Navigating the complexities of a dental practice purchase doesn’t have to be stressful or confusing. With the right information and expert guidance, you can make informed decisions and successfully transition to your new practice.

Remember, each dental practice purchase is unique, so what worked for one might not work for another. Trust your team, understand your Letter of Intent, and look forward to your future in your new practice!

Dental Practice Letter of Intent Frequently Asked Questions (FAQ)

Is a Dental Practice Letter of Intent Negotiable?

Yes, a dental practice Letter of Intent (LOI) is negotiable. Both the buyer and seller can discuss and amend the terms until they reach a mutual agreement. The LOI serves as a preliminary agreement, so flexibility in negotiations is essential for addressing both parties’ needs and concerns.

Does a Letter of Intent For a Dental Practice Include a Deposit? 

A Letter of Intent for a dental practice can include a deposit, but it is not mandatory. If a deposit is required, the LOI should clearly state the amount, the conditions for its return or forfeiture, and the escrow arrangements. This provides financial security and shows the buyer’s commitment to the transaction.

A deposit is one of our most important terms to cover due to the reasons mentioned above around the financial security of the letter and the real intent for the buyer to complete their transaction of the dental practice. 

Does a Letter of Intent Need To Be Notarized In Dentistry?

A dental practice Letter of Intent does not typically need to be notarized. The primary purpose of an LOI is to outline the basic terms and conditions of the transaction and demonstrate the parties’ intent to proceed. While notarization is not required, it is crucial that the LOI is clear, well-drafted, and agreed upon by both parties.

Does a Letter of Intent Need a Price? 

Yes, a dental practice Letter of Intent should include a price. Clearly defining the purchase price in the LOI ensures that both parties agree on the transaction’s financial terms from the outset. This clarity helps prevent misunderstandings and facilitates a smoother negotiation process.