At Mahan Law, we represent buyers and sellers of veterinary practices around the country. A key issue in a veterinary practice transition is whether contracts entered into by the seller will be assumed by the buyer. While contracts are freely assignable, it takes an experienced veterinary attorney to handle all the details and ensure the transition proceeds smoothly.
We know that contracts with associates, vendors, and employees, as well as leases and other agreements add value to a practice. Moreover, ensuring the transfer of such contracts can impact the structure of the deal and the timing of the acquisition. Our legal team understands the value and potential liabilities of assumed contracts and will work to protect your interests. Contact our office today to schedule your initial consultation.
Assumed Contracts When Selling a Veterinary Practice
Generally, contracts can be transferred from one party to another unless applicable laws and/or public policy limit the assignability of agreements (e.g. divorce agreements). Also, an assignment of a contract cannot increase the obligations of the remaining third party.
Finally, certain contracts may include “anti-assignment” provisions that bar or limit the assignment of an agreement.
In particular, an anti-assignment clause (often referred to as an assignment clause) will prohibit the transfer of a contract without the prior written consent of the other party. Such provisions are included in contracts to ensure third parties have some control over who they do business with in the future. At the same time, an anti-assignment provision will also specify that a party’s consent shall not be unreasonably withheld.
Ultimately, a key consideration for assumed veterinary contracts is whether the transaction is structured as an asset purchase or a share purchase. In an asset purchase transaction, the transfer of contracts occurs by way of assignment and the need for consent may arise if the agreement includes an anti-assignment provision.
By contrast, a share purchase of a veterinary practice does not result in the transfer of any assets, including contracts, so an assignment of a contract is not necessary. The parties to the contract remain the same, the ownership of only one of the parties changes. However, the need for consent may arise in the event of a change of control.
Third-Party Consent of Assumed Veterinary Contracts
When consent of third parties to veterinary contracts is required, there are a number of important considerations. The first is the timing of obtaining such consent; the contracts may stipulate when consent must be obtained. The time period may be several weeks before the anticipated closing of the transaction to allow the remaining party to determine whether or not to grant consent.
There may also be costs associated with obtaining consent from third parties, which can arise in connection with leases because landlords will want to assess the financial strength of the purchaser. Moreover, obtaining third-party consent raises potential confidentiality issues with respect to the transaction. The seller and the buyer of the veterinary practice will typically agree that the intended transaction will remain confidential from their respective employees, clients, and competitors.
Finally, both parties should consider the impact of any consents not being obtained, especially material contracts to the business. Because of these issues, it is crucial to have an experienced veterinary lawyer review any contracts that will be assumed and work with you to obtain any required consents.
How are contracts assigned in a veterinary practice transition?
In an asset purchase, the seller and the buyers will enter into an assignment agreement whereby the seller assigns the contract (and all rights, benefits, and obligations) to the buyer, and the buyer agrees to assume and perform such rights, benefits, and obligations.
The contract being assumed may also stipulate what, if any, obligations the seller will continue to have if the remaining party to the contract is not willing to grant consent or release the seller from its obligations. In this situation, the buyer will typically agree to be solely responsible for such obligations and to indemnify the seller for any non-performance or breach by the buyer under the contracts.
If consent is required from the remaining party to the contract, that party can either be made a party to the assignment agreement, or their written consent can be obtained prior to the assignment. If consent is not required, however, a notice of assignment should still be provided to the third party.
Finally, assigning contracts in a share purchase transaction is relatively straightforward. The only necessary document required is the sale and purchase agreement; however, any change of control provisions may require notice to or consent of the third parties to each of the assumed contracts.
Why Choose Mahan Law?
Although contracts are generally assignable in the purchase and sale of a veterinary practice, it is wise to seek legal counsel. Our highly skilled veterinary attorneys can help to:
- Review all contracts that may be assumed
- Determine whether any consents or notices will be required
- Assess any relevant anti-assignment provisions
- Prepare the assignment and assumption agreements
- Obtain the necessary consents from third parties
- Address potential confidentiality issues
Our objective is to ensure that the transaction is handled expediently so that the parties can achieve their objectives.
Contact Our Experienced Veterinary Attorneys
Assumed contracts are rarely an impediment to the purchase and sale of a veterinary practice, but it takes a skilled attorney to make sure there are surprises. Contact our office today to set up an appointment.