The First Paragraph Matters in an ALR Asset Purchase Agreement

If you are planning to buy or sell an assisted living facility, you need to pay attention to the first paragraph of the purchase and sale agreement. Often overlooked, this paragraph contains essential information about who, exactly, is entering into the agreement. It can affect the rights and obligations of both parties, such as the names of the parties, the effective date.

Seems Obvious?

Nonetheless, it extremely common that this section of the agreement will be undergoing modifications at the last minute because people hurriedly put the incorrect information in the earlier drafts of the contract, and gave it no further attention until the closing agents and lenders began double checking a few days before closing.

In this blog, we will explain why each of these “first paragraph” elements is important and worthy of a few extra moments of the beginning of the asset purchase contract negotiations. It is hoped that this simple explanation of these basic matters reduces the amount of time buyers and sellers may spend as they move toward a transfer of ownership.

The Names of the Parties 

The first element of the first paragraph is the identification of the parties to the agreement. Again, this may seem obvious, but these few lines are so often being changed in the last days before closing that it really is necessary to bring attention to it here.

It is crucial to use the correct legal names and entity types of the buyer and the seller. For example, if the seller is a limited liability company (LLC), the name should include the suffix LLC or L.L.C. and the state of formation. Similarly, if the buyer is an LLC, the name should include the same information. Using the wrong names or omitting the entity types can create confusion and ambiguity, and may even invalidate the agreement or worse.

One of the most common mistakes in drafting the identification of the parties is to use a different name or spelling for the same party throughout the agreement. For example, if the seller is ABC LLC, do not refer to it as A.B.C. LLC, ABC, L.L.C., or ABC Company in other sections of the document. This can cause confusion and inconsistency, and may lead to disputes over who is actually bound by the terms of the agreement, and to whom the state’s assisted living license has been granted. To avoid this problem, use defined terms for each party, such as "SELLER" and "BUYER", and use them consistently throughout the document.

Another potential mistake is to include the wrong information or omit important information about the parties' entity types or states of formation. For example, if the seller is a Delaware LLC, do not identify it as a corporation or a partnership, or leave out the state of formation altogether. This can affect the validity and enforceability of the agreement, as well as the rights and obligations of the parties under the applicable laws and regulations. To avoid this problem, verify the correct legal names and entity types of the parties, and include them in the first paragraph of the agreement.

Here is an example of how to properly identify the parties in the first paragraph of an assisted living asset purchase agreement: 

THIS PURCHASE AND SALE AGREEMENT (the “Agreement”) is effective as of January 15, 2024 (“Effective Date”) by and between __________ LLC, a (Name of State) limited liability company (“SELLER”), with offices at ______________________, and _________________, a (Name of State) LLC (“BUYER”), with its offices at________________________., . . .

The Effective Date 

The second element of the first paragraph is the effective date of the agreement. This is the date when the agreement becomes legally binding and enforceable, and when the parties start to perform their obligations under the contract. The effective date may or may not be the same as the date when the agreement is signed by the parties. Sometimes, the parties may agree to a retroactive or a future effective date, depending on the circumstances of the transaction. However, the parties should be careful when choosing a different effective date, as it may have tax, accounting, or legal implications. 

This can be tricky because the buyer and seller are often unsettled as to the date the contract should be effective. Often and usually, the Buyer doesn’t want to buy the business if they are unable to purchase the real estate. And often, the closing date for the real estate shifts around some as the lender works with buyer and seller. Similarly, the buyer may not want to buyer the business if they are unable to obtain a license from the state. These issues can result in the effective date in the contract being one of the last modifications made before closing.

Here is an example of how to specify the effective date in the first paragraph of an assisted living asset purchase agreement: 

THIS PURCHASE AND SALE AGREEMENT (the “Agreement”) is effective as of January 15, 2024 (“Effective Date”) by and between __________ LLC, a (Name of State) limited liability company (“SELLER”), with offices at ______________________, and _________________, a (Name of State) LLC (“BUYER”), with its offices at________________________., 

These few introductory elements of the purchase agreement are quite simple. In fact, so simple that they are often overlooked. Hopefully, this short article will encourage buyers and sellers to take an extra moment in the early days of contract negotiations, and save themselves trouble in the future.

The information herein is intended to be educational and an introduction to the subject matter presented. Despite any statutory or regulatory references cited in the article above, it is NOT specific legal advice to be relied upon for specific individual circumstances. Contact your own legal professional or reach out to our firm if you would like specific advice on this topic.

Look for additional blog posts on topics of interest to Assisted Living and Behavioral Health operators.  We welcome topic suggestions!  Write to info@pinkowskilaw.com if you are curious to learn more about a certain topic impacting assisted living or other group housing concerns.