The care home market is expected to be buoyant in 2021. Derek Ching partner in the commercial property team at Boyes Turner explains the key elements in due diligence associated with buying a care home.
Key areas include: rising compliance standards and staff overheads, including increases in the minimum wage and other employment overheads. Will these increases be matched by an increase in income?
TUPE – the rules governing the transfer of staff – post-Brexit immigration, loss of key staff all need to be part of your contingency planning. Losing key staff could affect continuing Care Quality Commission registration and may also have a major impact on operational effectiveness.
Property and planning issues
If you are thinking about developing the business physically, you will need to consider planning consents. A review of the property title will highlight any third party rights, covenants or title restrictions that may affect your plans.
If the care home is held under a lease, it is important to thoroughly understand the controls imposed by the lease covenants, which should include permitted use, controls on alterations, dealing with assignments, transfer of licences and the scope of repairing obligations.
Approval in principle for funding for buying a care home is never unconditional: sellers will need to supply every piece of supporting documentation required by the lender, even if you don’t consider them of immediate concern. Demands for personal guarantees or secondary security often add to the timescale before funds can be released as well as add to the expenses of the transaction overall.
Look out for underinvestment
Underinvestment or cost cutting may mean expensive catch-up investment later. This could include lack of maintenance and decoration, poor record keeping, inadequate support and training for staff, poor management, reduction in purchasing of supplies.
Other issues to look out for are excessive dividends or repayment of director loans at the expense of reinvestment into the business.
A survey of condition should encompass asbestos, DDA compliance, electrical and gas safety and energy performance.
Plan for ahead for CQC registration
Take time to understand any areas of improvement identified or outright non-compliances identified by CQC inspection reports and the implications for a new owner. This could be a sign of wider issues. Plan ahead for the CQC registration process to run smoothly.