Purchasing an Existing Assisted Living Home

Brian J. Pinkowski

There are a number of important elements to put in place when someone purchases an existing assisted living home.

The Real Estate

The first element is the real estate. Many assisted living owners hold the real estate in a separate company from the assisted living services. This is done for asset protection purposes. The real estate is often the largest item of value in an assisted living venture, and the most attractive asset for potential litigation. Accordingly, many investors who may want to support your desire to provide assisted living services, may want to keep their investment separate from the assisted living operations. The real estate is often held by a Limited Liability Company (“LLC”) for this reason. You should speak with your attorney regarding the asset protections strategies appropriate to your situation. Nonetheless, this is the approach we see most frequently.

The Operations

Since the real estate is now being held in a separate company, the assisted living operations will now require a separate legal entity. This entity is often also a LLC. With the operations being in a separate company, the liabilities associated with care of the elderly and handling of families are now separate from the most valuable asset, the real estate.  

The Real Estate Contract

The real estate contract is for the purchase of the real estate alone, and is not typically include business purchase provisions. The seller often, but not always, has structured their assisted living operations separate from the real estate for the same asset protection reasons used by purchasers today. However, even where they haven’t separated their own real estate and business operations, you will likely be advised by your attorney to purchase the real estate in one contract under one LLC, and the business assets under your operations LLC. 

The Asset Purchase Agreement (A.K.A. Purchase and Sale Contract)

The asset purchase agreement is the document that buyers typically use to purchase the business assets. Please notice that I said “purchase the business assets.” I did not say “purchase the business.” The business operations is typically where the liabilities, known and unknown, exist, despite the most fervent promises of the seller that there are no liabilities.

The business assets are the things that are owned by the existing business. These would include, beds, kitchen items, inventory, computers, business names, websites, files, and, importantly, resident contracts. The purchased business assets typically do not include any potential tax liabilities, debts of the business or financial obligations that may show up sometime in the future.

Thus, if you take this path it is very important that you are clear that your operations LLC is not purchasing “the business.” It is not purchasing the liabilities. Your operations LLC is purchasing only “the assets.” 

The Real Estate Lease

Under the common structure described here, the real estate LLC will be a landlord and the operations LLC will be a tenant. That means you will need a lease to keep things official. Plus, this is a good way to show investors, and real estate lender, if you have one, that you have a tenant on board to pay the rent.  

The Lease Purchase Agreement

There are some lenders in the assisted living business that will provide a lease purchase agreement for the real estate. A lease-purchase agreement provides that a private lender will buy the property very quickly, and lease it to the operations LLC for a period of 3-5 years, when the buyer can then purchase the property through their real estate LLC. These can be very helpful for buyers that need to move faster than normal commercial lenders can accommodate. However, it also means there will be an additional element, the Lease-Purchase Agreement that provides rental and purchase terms. The Lease-Purchase scenario also provides some time for the new buyer to organize an SBA loan, if they intend to go that direction for financing. 

Zoning / Number of Residents

Many people want to buy an existing ALR and then increase the number of residents. We discuss zoning in more detail in our Learning Center: Zoning Hacks to Get You Started FAST.  

The elements described above are slightly different when purchasing real estate to establish a new assisted living home, but include many of the same factors. If you are purchasing an existing home and hope to increase the number of residents who live there, make sure to not overlook the potential need to get zoning approval before you sign the real estate contract.

Naturally, I am not providing legal advice for your situation. You should contact us or your own legal counsel for advice specific to your situation and you need assistance with each of the legal pieces described above.

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Brian is an attorney with Pinkowski Law & Policy Group, LLC, a law firm focused on the needs of assisted living residences of all sizes in Colorado and across the U.S.

Brian is also the President of the Residential Assisted Living National Association, a 40,000 member association partnered with the Colorado Assisted Living Association and committed to