Preparing to sell your care home: key property considerations

For most care home owners, the decision to sell represents the culmination of years of hard work, investment and personal commitment. Yet when it comes to realising the full value of that investment, the underlying property is often the most complex and frequently underestimated element of the transaction.

This article sets out the key property considerations that sellers and operators should address well in advance of bringing a care home to market.

Regulatory and compliance considerations

When selling a care home, sellers must ensure that all compliance documentation is available and up to date for the due diligence process. This includes documentation evidencing compliance with building regulations for any alterations or extensions carried out during ownership, such as completion certificates and related approvals.

While gaps in this paperwork don’t necessarily indicate non-compliance, they create uncertainty that a cautious buyer may price into their offer or seek to address through warranties and indemnities.

Title and legal due diligence

Title issues that surface late in the process are among the most common causes of delay to transaction timetables. Owners should instruct solicitors to review the title register and title plan at an early stage to identify and, where possible, resolve any of the following:

• Restrictive covenants that might limit use, alteration or future development of the site
• Easements and rights of way, both benefiting and burdening the property, including access, drainage and service media
• Existing charges, mortgages or other financial encumbrances that will need to be discharged or released on completion
• Any unregistered interests, historic conveyancing anomalies or discrepancies between the title plan and the property as it exists on the ground.

Where issues are identified, there’s often time to resolve them and work with the buyer’s solicitors to find a solution.

Planning and change of use

Care homes typically fall within Use Class C2 (residential institutions) under the Town and Country Planning (Use Classes) Order 1987. Sellers should confirm the lawful planning use of the property, obtain copies of the original planning permission and any subsequent consents for extensions or alterations, and check for outstanding conditions or, critically, any enforcement notices that haven’t been formally discharged.

Environmental and survey issues

Environmental due diligence is increasingly a standard feature of care home transactions and owners should anticipate that buyers will require evidence on the following:

• Asbestos: many care homes occupy older buildings, whether purpose-built or converted from residential or institutional use, and an up-to-date asbestos survey and management plan is generally expected as a matter of course
• Contaminated land: a check of local authority contaminated land registers and historic land use (for example, former industrial or landfill use nearby) will typically be carried out by the buyer’s solicitors, and it’s helpful for sellers to have this information to hand
• Flood risk: an assessment against Environment Agency flood maps and details of any historic flooding or flood defences will be relevant to both insurability and a buyer’s operational risk assessment
• Energy Performance Certificates (EPCs): a valid EPC is a legal requirement for marketing most commercial premises. Buyers will also be alert to the implications of minimum energy efficiency standards (MEES) for future compliance and refurbishment costs.

Commissioning these surveys, or at least reviewing existing reports before going to market, allows any issues to be addressed or reflected in pricing on the seller’s own terms, rather than becoming a point of leverage.

Lease arrangements (where the property is leasehold)

Some care homes are held leasehold, whether under a long institutional lease, a sale-and-leaseback arrangement or a lease from a specialist care property investor. Where this is the case, the terms of the lease will be central to the transaction and should be reviewed well in advance of marketing.

Key areas to consider include:

• The unexpired term of the lease and whether it’s long enough to satisfy the requirements of the buyer or the buyer’s lenders
• Break clauses and the conditions attached to their exercise by either party
• The rent review mechanism, including the basis of review (open market, RPI-linked or fixed uplifts) and the timing of the next review
• Whether landlord’s consent is required to assign or underlet the lease, the process and likely timescale for obtaining it and any conditions the landlord is likely to impose (such as rent deposits, guarantees or an authorised guarantee agreement)
• Alienation, alteration and user covenants, and whether these are compatible with the buyer’s intended operating model
• Any outstanding rent reviews, service charge disputes or dilapidations issues that could affect the landlord relationship going forward.

Engaging with the landlord early – for example, to give informal notice of a prospective sale and to understand the landlord’s likely requirements for consent – can materially shorten the time needed to complete once a buyer is found and avoids an unwelcome surprise appearing late in the transaction.

Conclusion

Selling a care home is rarely a straightforward transaction and the consistent theme running through each of the considerations addressed in this article is the value of early preparation. Issues that are identified and addressed months before marketing can usually be resolved on the seller’s terms; the same issues, discovered mid-transaction by a buyer’s advisers, tend to result in delay, renegotiation or, in the worst cases, a collapsed deal.

Sellers and operators considering a sale would therefore be well advised to begin their property preparation well ahead of any formal marketing process, engaging specialist legal, surveying and agency advice at an early stage.

It’s also important to be realistic about how long it will take to sell your business. Typically, a care business in the UK will transact between six and 12 months, but this can vary depending on the type of business you’re selling and the market conditions at the time.