Payoff letters are essential in a dental practice sale. Learn what they are, why they matter, and how to avoid closing delays when buying or selling a dental practice.

Each week, I share a quick insight from my dental law practice. This week’s topic: payoff letters and why they’re so important at closing.

Scenario: We had a client that just closed on a dental practice in the Midwest. She had been an associate at the practice for several years before buying it from her employer. All things considered, the practice transition was going smoothly up until about two weeks before closing. The holdup: payoff letters. This is one of the most easily overlooked, yet critical pieces of the process of buying or selling a dental practice. These simple documents can make or break a smooth closing.

Answer: First, let’s discuss what a payoff letter is. A payoff letter (or payoff statement) is a written statement from a lender showing exactly how much is owed to pay off a loan in full as of a certain date. In a dental practice sale, payoff letters are often needed for practice loans or equipment financing. A payoff letter typically includes:

• The total amount due, including principal, interest, and any fees
• The per diem interest (the amount of interest added each day)
• Payment and wiring instructions
• The date through which the payoff is valid (usually around 10 days)

Before a dental practice changes hands and the lender wires the money to the seller, any existing liens or loans tied to the seller and the assets of the practice must be paid off. Most dental acquisitions are in the form of an asset purchase, meaning the buyer only purchases the assets of the business and assumes none of the liabilities. So, in order for the buyer to take ownership of the assets free and clear of any encumbrances, all the liens must be paid off.

Lenders don’t always move quickly when it comes to payoff letters. It can take several days or even a week to issue a payoff letter, and sometimes lenders won’t release it until just before closing. If the buyer’s attorney (if the buyer is not using any financing to fund the purchase) or the buyer’s lender (if the buyer is financing the purchase) does not have the payoff letter(s) in hand before closing, the deal will not proceed.

Some best practices for dealing with payoff letters are the following:

1. The buyer’s attorney should perform a UCC search early in the process (right as the purchase documents are starting to be drafted and reviewed) to determine if there are any liens against the practice or assets. The buyer’s lender will also perform this search to verify and confirm what the buyer’s attorney found.
2. The seller should start requesting payoff letters as soon as the closing date is decided.
3. Like we discussed earlier, the payoff letters might only be good for the next 10 to 30 days. If the anticipated closing is longer than the good-through date, the seller should make a note to follow up with the lender again when the time is right closer to closing.

Payoff letters are one of those small details that can make a big difference in your closing timeline. By planning ahead, you can prevent unnecessary delays and ensure a smooth, successful dental practice sale. If you’re preparing to buy or sell a dental practice, contact Finn Legal to make sure every step, including the handling of any payoff letters, is handled correctly from start to finish.

Learn which contracts a dentist typically assumes when buying a dental practice. Finn Legal helps dentists navigate asset purchase agreements with confidence.

Each week, I share a quick insight from my dental law practice. This week’s topic: what contracts are typically assumed in a dental practice asset purchase agreement.

Scenario: We have a client buying a dental practice on the West Coast. It is an asset purchase deal, as is the case in most scenarios when the buying dentist is purchasing essentially the whole practice of the selling dentist’s business. In a dental asset purchase deal, the buyer will purchase substantially all the seller’s assets, but will not assume many, if any, of the liabilities of the practice. Our client wanted to know what are typical liabilities that are assumed in a dental asset purchase deal.

Answer: Here are some contracts that might be assumed by a buyer in a dental asset purchase:

1. The Office Lease – The buyer will either assume the seller’s existing lease through the landlord’s consent and an assignment or negotiate a new lease with the landlord. Since the location of the practice is essential to the goodwill that the buyer is purchasing, the lease is one of the most important assumed contracts.
2. Equipment Leases – Many practices lease equipment or have maintenance contracts for chairs, autoclaves, IT systems, or digital X-ray machines. These contracts can be assigned to the buyer; however, each vendor typically must consent in writing.
3. Practice Management Software - Most practices run on systems like Dentrix, Eaglesoft, or Open Dental. These agreements are often assumed to maintain operational continuity, but software licenses can be tricky. Some vendors allow transfers; others require a new subscription.
4. Employment Agreements – If the buyer plans to retain the seller’s staff, those employees are typically terminated on the day of closing and immediately rehired by the buyer after closing. However, certain contracts like an associate’s employment agreement may be assigned to the buyer.
5. Vendor and Supply Contracts – Relationships with dental suppliers like Henry Schein, Patterson, or Benco can often be continued. Buyers may assume these contracts if they include favorable pricing or credit terms.
6.  Service Contracts – A dental office relies on multiple recurring services. Some examples of this include janitorial, biohazard waste disposal, IT maintenance, laundry, and equipment calibration. These contracts are usually assumed so the buyer can walk into a fully operational office on day one.
7. Patient Financing Agreements – If the seller offers third-party financing through CareCredit or similar companies, those agreements can be assumed. It’s an easy way to maintain the same payment options for patients and preserve goodwill.
8. Equipment Warranties – If the equipment being purchased is still under warranty, those warranties are usually assigned to the buyer so they can take advantage of any remaining coverage.
9. Marketing, Phone and Domain Agreements – For continuity in communication, a lot of the time buyers will assume contracts related to the practice’s phone numbers, answering services, and website domain and hosting.
10. PPO and Insurance Contracts – It should be noted that these types of agreements cannot be assigned because they are unique to each dentist and their tax ID. The buyer will need to re-credential with the carriers under their new legal entity.

When purchasing a dental practice, not every contract is worth assuming. However, he right ones are essential to keeping the business running smoothly. Each agreement should be reviewed carefully to confirm whether it can be assigned, whether the terms are favorable, and whether third-party consent is required.

At Finn Legal, we help dentists navigate every step of the practice transition process. If you’re considering buying or selling a dental practice, contact Finn Legal today to schedule a consultation and ensure your transaction is structured for long-term success.

Learn why the “No Adverse Events” clause is a key closing condition in dental asset purchase agreements. Protect your investment and avoid post-closing surprises.

Each week, I share a quick insight from my dental law practice. This week’s topic: the “No Adverse Events” clause and why it matters when you’re buying a dental practice.

Scenario: We had a client that had been negotiating and working towards buying an oral surgery practice in the Northeast. Due to some difficulties in coming to an agreement on the valuation of the real estate that was to be purchased as part of the deal, the parties signed the asset purchase agreement in January but were not anticipating closing on the deal until June of the same year. As we got closer to the closing date in June, the lender, as is lending protocol, requested year-to-date profit and loss statements and year-to-date production/collection reports. It was discovered in these reports, a week before we were set to close, that the seller had let collections drop by a staggering 40%. The seller thought the deal was done and dropped his clinical hours significantly during the six months between signing the purchase agreements and closing. Once this was discovered, our client wanted to know what his legal options were.

Answer: In a scenario like this, there are typically two ways to proceed for the buyer. The first is to re-negotiate the purchase price. Practically and legally, this is very straightforward. The buyer and seller decide on a new purchase price to account for the drop in the collections and then an amendment to the purchase agreements is drafted to reflect the new purchase price agreed by the parties. 

The second way for a buyer to proceed, which our client ended up doing, is to rely on the “No Adverse Events” clause in the asset purchase agreement. When buying a dental practice, one of the key conditions that must be satisfied before closing is the “No Adverse Events” clause. This clause is designed to protect the buyer from unexpected negative changes in the practice between signing the asset purchase agreement and the closing date.

A typical provision might read something like:

“There has not been any event or condition of any character on or before the Closing Date that has materially and adversely affected the financial condition, business, Purchased Assets or the Practice.”

In plain terms, this means that the seller must maintain the practice in substantially the same condition as it was when the buyer agreed to purchase it. The practice should not experience any material decline in staff, production, collections, patient base, or other key business elements before closing.

This clause is important for three reasons:

1. Protects the buyer’s investment. If the practice loses staff, patients, or experiences a sharp drop in production after the agreement is signed, the buyer could end up purchasing a business worth far less than expected.
2. Maintains business continuity. This provision encourages the seller to operate “business as usual” until closing, ensuring the buyer acquires a stable and fully functioning practice.
3. Gives the buyer leverage. If a significant adverse event occurs the buyer may have the right to delay or even terminate the closing.

Buying a dental practice involves a lot of moving parts, and this is one clause you definitely don’t want to overlook. A well-drafted “No Adverse Events” condition can save you from big headaches down the road.

If you’re in the process of buying or selling a dental practice, reach out to Finn Legal. We help dentists navigate every step of the deal with confidence.

Learn why the seller’s “good standing” status with the state is an important representation in a dental practice sale and what can happen if the entity isn’t in good standing.

Each week, I share a quick insight from my dental law practice. This week’s topic: when a seller’s legal entity isn’t in “good standing.”

Scenario: Recently we had a client buying an oral surgery practice in the Southwest. As buyer’s counsel, we prepared the first draft of the purchase agreements. We received revisions back from the seller with a major red flag. One of the standard representations and warranties that the seller of a dental practice will make to the buyer is that the seller is “duly organized, validly existing, and in good standing” with the state. In this case, the seller deleted that language. Upon further investigation with the state, we found out that the seller’s legal entity had been administratively dissolved with the state due to a nominal amount of unpaid taxes. Our client asked what his options were regarding the purchase and what sort of consequences were there for the seller.

Answer: When selling a dental practice, one of the standard representations in the asset purchase agreement is that the seller’s entity is “duly organized, validly existing, and in good standing” with the state. That may sound like boilerplate legal language, but it actually matters quite a bit.

Being in “good standing” means the seller’s legal entity has kept up with all required state filings, paid annual registration fees, and complied with any franchise tax obligations. Essentially, the state recognizes it as an active and compliant business. If a seller’s entity has fallen out of good standing, it can cause real issues at closing. In some states, an entity that’s not in good standing technically doesn’t have authority to conduct business or transfer assets until it’s reinstated. That can delay the transaction or, like in our case, even invalidate certain representations in the purchase agreements.

From the buyer’s perspective, you want to make sure the entity selling the practice actually has the legal capacity to sell its assets. From the seller’s perspective, it’s an easy fix, but one that should be handled well before closing week to avoid scrambling for reinstatement documents at the last minute. For my client, this representation and warranty killed the deal at the time. The seller ended up paying the taxes owed and reinstating the entity with the state. We eventually closed the deal, but it delayed closing a couple months.

If you’re buying or selling a dental practice, take a quick minute to confirm the seller’s entity status with the Secretary of State early in the process. It’s a small detail that can prevent a big headache.

Need help reviewing your purchase agreements or getting your entity back in good standing before closing? Let’s talk.