5 issues to watch out for in a nursery sale

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Selling your nursery business can seem like an overwhelming task, especially when it’s not something you have done before. Our corporate and commercial solicitors work with nursery sellers across the UK and are all too aware of the issues that can arise during a nursery sale.

What to consider when selling a nursery

Lawyers are often only engaged at the point a nursery owner has agreed on the terms of a sale with a buyer, with the parties then wanting the transaction to conclude as swiftly as possible.

A typical sale process might take around three months to complete from this stage, but that is only if matters run extremely smoothly, and the seller is ready to go with all documentation. Where sales drag on, this will often be due to an issue discovered during the buyer’s due diligence process.

If you are in the early days of considering your exit plan and a sale of your nursery (be that a single site or group of settings), here are the top five issues to consider, according to our expert team:

1. Due diligence documents: be organised

Due diligence is a detailed review of the business by the buyer and their professional team. A due diligence review of your nursery will involve questionnaires covering multiple areas: legal, financial, tax, operational, and properties. You will need to respond to their specific questions and provide supporting documents. This process is intensive but can be made far more manageable with some prior planning.

Having all your documents electronically available, in one location, logically organised with a system so you can quickly file and find things, is a simple way to get ahead. And it makes sense from a business perspective in any case.

Commonly requested documents include:

  • Financial accounts and management information;
  • Details about occupancy and nursery funding;
  • Evidence of compliance with regulatory matters;
  • Documents related to property interests;
  • Employment-related documents;
  • Copies of contracts or terms with suppliers; and
  • Details of borrowings and liabilities of the business.

Our nursery experts will provide you with a full checklist to assist you in pre-planning.

2. Properties: check leases and planning

If your nursery operates from leasehold sites, a simple health check of the leases in place is invaluable. And if you are planning on selling the shares in your company, is the lease sitting in the limited company already? If not, it will need to be assigned as part of the sale process.

Another consideration is the expiry date of the lease and whether this will need to be renewed prior to the sale or as part of the sale process to achieve maximum value. Any matter that requires you to liaise with your landlord will inevitably involve additional time and cost, which needs to be factored in.

Be particularly wary if you took the lease on without legal advice; there are registration and Stamp Duty Land Tax requirements depending on the term and value, which fall within the tenant’s responsibility. We work closely with our commercial property lawyers who can help identify and resolve any issues well in advance of the nursery sale.

It is worth double-checking that you have the appropriate planning permission to operate as a nursery. However, an issue we often see is a planning condition that restricts the number of children attending at any one time, or onerous conditions around the hours of operation. These conditions may have been fine when you first set up but are often then forgotten many years later when a nursery has been able to expand (for example, because of a change in Ofsted requirements around the maximum number of children permitted). There are various options to deal with this issue if it exists, and you may need to seek expert input from a planning consultant.

3. Compliance: there is more than you think

Most nursery owners are confident they are doing their utmost best to comply with laws and would not intentionally act in breach of a requirement. However, there is a wide range of compliance matters to consider when operating a nursery business; some are very obvious, such as Ofsted and safeguarding requirements, and others perhaps less so.

A particular area of focus for any buyer will be compliance matters associated with the property and health and safety matters. For example, asbestos reports, electrical reports, fire risk assessments, and fire safety equipment certificates. Making sure you have all required reports in place and kept up to date is important when preparing for a sale, but also a fundamental part of your legal responsibilities as the operator of the business.

4. Corporate structure: be aware of skeletons from historical changes

Every company is required to have statutory registers in place under the Companies Act. These differ from the records held by Companies House, and it is an area often overlooked. Check to see if you hold these, or if your accountant has them and has been maintaining them. If these don’t exist, there are measures you can take in advance to rectify this. Our Corporate team would be happy to discuss options with you.

It may be a simple job, however, be particularly wary if there have been historical changes in the structure or share ownership of the company. In short, if such changes took place and a corporate lawyer was not involved at the time, it may not have been done properly and could present a timing and deal risk when it comes to your sale.

If you operate as a limited company and are planning on selling the company, check the registered provider for Ofsted purposes is the limited company. If there have been changes to the structure (e.g. incorporation after operating as a sole trader or partnership), or additional companies added along the way, the registration might have been overlooked and now be sitting in the wrong place. When a re-registration with Ofsted is required pre-sale, this could impact timeframes if not identified early on.

5. Employment: your biggest asset and often your biggest headache

Employment law is often an area you may be quite familiar with as a nursery owner, and many operators engage HR specialists for ongoing operational support.

The world of employment law is constantly changing, and sometimes the rules and requirements are hard to navigate or implement. A health check of your employment practices would be useful to carry out. For example:

  • Do you have written terms of employment in place?
  • Have you considered how any unwritten policies you adopt might impact a buyer’s consideration of your business?
  • Are you complying with National Minimum Wage requirements?
  • Are you complying with holiday pay requirements? (Being wary of the complexities that arise with zero hours, term-time only or overtime arrangements)
  • Can you properly evidence your compliance with checking an employee’s right to work?

If you want help with a health check or employment-related matters, our Employment team would be happy to assist.

Contact our specialist nursery lawyers

When it comes to selling a nursery or any other business, it is always best to seek legal advice. This can help ensure the process runs as smoothly as possible and avoid any unwanted and potentially avoidable errors or delays along the way.

If you’re in the process of, or thinking about selling a nursery, our expert team of nursery solicitors can help. For an initial conversation, call 0117 325 2929 or fill out our online enquiry form.

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