Typical RAL Contingencies - How to Purchase a Residential Assisted Living

Buying a residential assisted living (RAL) property is not like buying a “regular” home. There are many factors to consider, such as the location, zoning, licensing, regulations, staffing, and of course, the existing business that operates on the premises. In fact, it is recommended that there are two contracts when you purchase the assisted living – one for the real estate and another for the purchase of the business. A buyer often does not want the real estate if the business does not survive due diligence. Similarly, a buyer often does not want the business if they do not also own the real estate. That's why it's important to have some specific contingencies in your real estate contract that protect your interests and allow you to conduct a thorough due diligence before closing the deal.

Here are some typical contingencies that can be found in the real estate contract when also purchasing an RAL.

1. The Buyer has the right to assign the Contract to a trust, limited liability company or other entity.

This is important because the entities involved in the purchase of the real estate and the business may be different, and may not have been formed at the time of signing the real estate contract.

2. The closing of the purchase of the Property is contingent upon the execution a Purchase and Sale Agreement (also known as an “Asset Purchase Agreement”) for the purchase of the assets of the existing assisted living business operating on the Property under the name (name of the assisted living operations business) and the concurrent closing of the Asset Purchase Agreement with the sale of the Property by the by the Closing Date.

This contingency forces the buyer and seller to acknowledge that the buyer is not only buying the property, but also the business that runs on it. The buyer and the seller need to sign a separate agreement for the business assets and close both deals at the same time. This clause seeks to protects the buyer from buying the property without the business or vice versa.

3. It is acknowledged by the Seller that the successful conclusion of the Asset Purchase Agreement will require disclosure of financial and HIPPA related information as part of the due diligence on the purchase of the business assets, and the Seller will cooperatively work with the Buyer to ensure that information is available for review by the Seller.

This contingency explains that the seller has to share financial and HIPPA related information with the buyer as part of the due diligence process. This means that the buyer can verify the profitability and regulatory compliance of the business before buying it. The Buyer can also confirm that the business is providing the proper level of care to the residents and is delivering care within its license restrictions.

4. The closing of the purchase of the Property and the closing of the Business Sale Transaction are contingent upon the Buyer obtaining an assisted living license for the Property. If Buyer has not obtained an assisted living license by the Closing Date, Buyer may terminate this Contract and the Business Sale Transaction or agree to close on the purchase of the Property and the Business Sale Transaction. If Buyer agrees to close on the purchase of the Property and the Business Sale Transaction without an assisted living license, Seller agrees to allow Buyer to continue using Seller’s license at no charge until a new license is obtained by Buyer.

This contingency clause is often included in a real estate contract because the buyer wants to make sure that they can operate an assisted living facility on the property after buying it. An assisted living license is required by the state to provide care and housing for elderly or disabled residents. The clause gives the buyer the option to back out of the deal if they cannot obtain a license by the closing date, or, if it seems the license will be forthcoming, to proceed with the purchase and use the seller's license temporarily until they get their own.

5. In the event the Business Sale Transaction does not close by the Closing Date, Buyer shall have the right to terminate this (real estate) Contract and all earnest money shall be refunded to Buyer.

This contingency clause often included to protect the buyer's interest in case the business sale transaction falls through for any reason. The buyer may not want to buy the property without being able to acquire the business as well, since their intention is to run an assisted living facility. Therefore, the clause gives them the right to cancel the real estate contract and get their earnest money back if the business sale transaction does not close by the agreed date.

6. The seller must provide access to their compliance history with [Name of State] for the buyer to review within XXX days following the contract's effective date.

This contingency clause is important in a real estate contract because it allows the buyer to verify the seller's compliance history with the state regulations for operating an assisted living facility. The buyer may want to ensure that the seller has not violated any rules or standards that could jeopardize the license transfer or expose the buyer to unexpected legal risks. The clause also sets a deadline for the seller to provide this information prevent the seller from delaying or withholding it.

7. Seller shall cooperate with Buyer and execute any document required by the [Name of State or other governmental entities] to transfer its assisted living license to Buyer. This provision shall survive the closing of the purchase of the Property and the closing of the Business Sale Transaction.

This clause requires that the seller has to work with the buyer and sign any papers that may be required by the state or other governmental entities to change the ownership of the assisted living license. This rule will still apply even after the buyer pays for the property and the business.

8. Buyer reserves the right to extend the Closing Date by [number of days] days by depositing an additional [agreed upon dollar amount] earnest money with the Escrow Agent.

This clause provides that the buyer can choose to delay the final payment for the property and the business by a certain number of days, if they pay some extra money to the escrow agent. The escrow agent is a third party who holds the money until the deal is completed. This way, the buyer can have more time to finalize the details of the transaction, and the seller can be assured that the buyer is still interested.

Contingency clauses similar to the examples provided above are common, but are usually adjusted on a deal-by-deal basis, depending upon the needs of the buyer and seller, and the attorneys involved.

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.

Brian PinkowskiFebruary 3, 2024