Goodwill & Restraints: Protecting Your Purchase, Patients & Employees When Buying a Practice
A major asset of any practice is its goodwill. This includes the reputation, patient or client relationships and other value the practice owner has built over time.
When purchasing a practice, you are entitled to reasonable protection to help preserve the goodwill you are paying for.
The practice sale agreement should therefore include appropriate restraint clauses. These can prevent the seller from competing with the practice for an agreed period and within an agreed area, as well as restrict them from approaching the practice’s patients, clients or employees
Key questions to ask when purchasing a practice.
When advising practice purchasers, some of the key questions we consider include:
- What restraints is the practice owner prepared to agree to and will they adequately protect you? The length and geographical area of the proposed restraint are important. The restrictions need to provide appropriate protection while also being reasonable and enforceable.
- Do the restraints cover patients, clients and employees? The sale agreement should consider whether the former owner can approach or encourage patients, clients or employees to leave the practice after the sale.
- Are there key employees or contractors you need to consider? If particular employees or contractors are important to the ongoing success of the practice, their existing agreements should also be reviewed. Are appropriate restraints already in place? What protections are available if there are no written agreements?
- Does the practice owner have another practice nearby? If the seller owns, works at or intends to establish another practice, consider its location and whether it could compete with the practice you are purchasing.
- What are the seller’s plans after the sale? For example, are they retiring or do they intend to continue practising? Understanding their plans can help determine what protections may be appropriate.
Making sure restraints are enforceable.
Appropriately drafted restraints can help protect the valuable goodwill you are acquiring from the practice owner.
Depending on the terms of the sale agreement, the seller may agree not to practise within a defined area for a certain period. They may also agree not to actively approach the practice’s patients, clients or employees.
However, simply including a restraint in the agreement does not automatically mean it will be enforceable.
Restraints need to be reasonable and carefully drafted. The appropriate timeframe, geographical area and restrictions will depend on the circumstances of the practice and the transaction.
The importance of protecting yourself (and your purchase).
Without appropriate restraints, the value of the goodwill you have purchased may be at risk if the former practice owner establishes or joins a competing practice, approaches former patients or clients or encourages employees to leave.
It is therefore in a purchaser’s interests to make sure the practice sale agreement contains appropriate, reasonable and enforceable restraint clauses.
The requirements and enforceability of these clauses can differ between states and territories, so it is important to discuss the proposed restraints with your lawyer before proceeding with a practice purchase.
Do you need legal support purchasing a practice?
Aintree Group Legal works with veterinary, dental, medical and allied health professionals on practice sales and acquisitions and other legal matters throughout the lifecycle of a practice.
If you are considering purchasing a practice, our team can review the proposed sale agreement and help you understand whether the restraints and other protections are appropriate for your circumstances.
About Julian Whitehead
Assisting with practice sales and acquisitions, property and lease negotiations, start-ups, compliance, risk management, due diligence and dispute resolution, Julian is passionate about providing advice that is strategic, pragmatic, and tailored to each client’s circumstances.
Julian places great importance on his clients’ long-term objectives. He believes that clear, candid communication and close collaboration with both his clients and their broader advisory team are key to achieving the best outcomes.
That collaborative approach aligns naturally with Aintree Group’s integrated model, with his clients able to access coordinated legal, accounting, wealth and business advisory expertise as their needs evolve.
This is general advice only and has not been prepared with your individual situation or needs in mind. For personalised advice, we highly recommend that you seek professional guidance from a qualified adviser.
