Acquiring a care home can be an attractive investment for developers, investors and operators alike, but the sector’s regulatory framework, property-driven valuation and specialist funding needs create complexities beyond those of other corporate transactions.
In this article, our Care Home Lawyers explore the key corporate, property, and banking issues buyers should consider at the outset of a care home acquisition.
Corporate Considerations
A key initial decision is whether the deal will be a share purchase or an asset purchase.
If the acquisition is structured as an asset purchase, particular care should be taken where the home sits within a wider group and relies on group-level service agreements and other operational agreements, such as telecoms and medical equipment supply or maintenance contracts, which may not move across on completion.
If this is overlooked, this can cause major disruption to the day-to-day running of the home after completion and may impact the immediate viability of the business.
Comprehensive due diligence is essential. Buyers should review resident contracts, employment matters and the home’s Care Quality Commission (CQC) compliance history. This process not only identifies risk but also informs transaction structuring and ongoing operational planning.
The parties must obtain CQC consent to transfer the registered business to the buyer and, where relevant, local authority approval before completion.
These processes can be lengthy and must be built into the transaction timeline from the outset.
If acquisition funding is required, lenders will not release funds until CQC approval is confirmed, making early engagement with the regulatory process critical.
Property Considerations
The care home property itself requires detailed due diligence.
While standard property checks apply, several issues are of particular concern for both buyer and lender, including planning permissions, restrictive covenants and lease and regulatory compliance.
Given that the property is often the primary security for funding, any issues identified can directly affect both value and lender appetite.
The property must have appropriate planning consent for care home use, typically Use Class C2.
Buyers must ensure permission is in place and that any conditions, such as limits on resident numbers, are acceptable and align with the intended business model.
Restrictive covenants can also pose challenges. Some residential properties prohibit business use or require occupation as a single dwelling, which may conflict with care home operations.
These restrictions can affect both the use and value of the property and should be carefully considered as part of the due diligence process.
Where the operator leases rather than owns the property, the lease must be carefully reviewed.
In particular, the lender may have specific requirements for the lease, for example, upward only rent reviews.
Lease terms can also influence funding terms and should be aligned with lender expectations at an early stage.
Banking Considerations
Lenders assess care home acquisitions based on both property value and trading performance.
Key financial metrics considered by the lender, which are particularly important in the care sector, include cash flow, occupancy levels, fee rates and the balance between local authority and privately funded residents.
Funding typically involves a comprehensive security package, including a legal charge over the care home property, a debenture over the operating company and assignment of material contracts and insurance policies.
If the buyer is part of a wider group, lenders will assess group-level financial strength.
Guarantees from other group companies, security over additional assets and group-level financial covenants are common.
This may limit the ability of the other group companies to take on further borrowing, dispose of assets or make structural changes without lender consent, and should therefore be considered as part of the wider strategic planning of the group.
Key Takeaways for a Successful Care Home Acquisition
Successful care home acquisitions depend on early coordination across corporate, property and banking workstreams.
By identifying regulatory requirements, property risks and lender expectations at the outset, buyers can minimise delays and avoid unexpected costs later in the transaction.
Taking a joined-up approach from the outset is particularly important in the care sector, where regulatory approvals, funding conditions and operational considerations are closely linked.
Ensuring these elements are aligned can be key to delivering a smooth and successful transaction.
Contact Our Care Home Team
If you are considering acquiring a care home, our specialist corporate, real estate and banking teams can guide you through every stage of the transaction. From structuring the deal and navigating CQC requirements to satisfying lender conditions, we provide a fully integrated approach to help you complete with confidence.
Get in touch with our team today to discuss your plans.
0161 941 4000
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Acquiring a care home can be an attractive investment for developers, investors and operators alike, but the sector’s regulatory framework, property-driven valuation and specialist funding needs create complexities beyond those of other corporate transactions. In this article, our Care Home Lawyers explore the key corporate, property, and banking...
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Palma Percze
Associate
Palma is an Associate in our Corporate Team. Palma has experience assisting with various corporate matters including M&As, disposals, reorganisations and drafting shareholders’ agreements and articles.
About Palma Percze