TL;DR: Most people assume that self-employed associates automatically transfer when buying a dental practice. Without proper agreements in place before completion, you can’t enforce restrictive covenants, and associates can walk away with patients. The solution is making new associate agreements a condition of completion.
The transferring of associates form part of the wider legal process of buying a dental practice. For an overview of all stages from heads of terms through to post-completion, see our guide to buying a dental practice.
- Associates are self-employed contractors, not employees, so they don’t transfer automatically with the practice
- Without new agreements, you can’t enforce restrictive covenants preventing associates from competing or taking patients
- You have two options: make new agreements a condition of completion, or deal with it afterwards (risky)
- Best practice is to exchange contracts first, then have associates sign new agreements before completion
- Agree your position on associates early in the transaction, not days before completion
Do Associates Transfer Automatically When Buying a Dental Practice?
When you’re buying a sole trader dental practice, there’s one assumption that catches almost everyone out.
Buyers think the self-employed associates automatically transfer when buying a dental practice. Like the equipment. Like the patient list.
They don’t.
Associates are self-employed contractors, not employees. That distinction changes everything about how you handle the acquisition.
Bottom line: Associates don’t come with the practice unless you specifically arrange for them to sign new agreements.
Why Sellers Resist Pre-Completion Associate Agreements
I set out the position to buyers early. You’ve got two options with existing associates.
Option one: Make it a condition of completion that associates sign new agreements with you, or sign novation agreements transferring their current contracts from seller to buyer.
Option two: Don’t make it a condition. Deal with it after completion.
Most sellers resist option one. They don’t want to tip off staff that the practice is being sold.
Getting new associate agreements signed beforehand means telling staff about the deal. Associates might not take it well. Some might refuse to sign.
And associates are key to a dental practice’s turnover.
Key point: Sellers prioritise confidentiality, but this creates risk for buyers who can’t secure associates before completion.
What Risks Do Buyers Face Post-Completion?
When buyers choose option two, they’re taking on a specific risk.
The restrictive covenants in those associate agreements aren’t enforceable by the buyer. You’re not a party to the contract.
The restrictions about not stealing patients, not setting up next door, not working at competing practices? None of that protects you.
I’ve seen this play out. Buyer wasn’t concerned, decided to deal with it post-completion. An associate left to work at another practice far away.
A few months later, that same associate came to work at a practice down the road. There was nothing the buyer could do about it.
Key point: Without enforceable restrictive covenants, associates can leave immediately after completion and take patients with them.
What Red Flags Should You Look for in Associate Agreements?
During due diligence, restrictive covenants are what I look at first. They need to be tight.
I’m working on a transaction now where the associates have restrictions, but they only kick in after termination of the agreement.
Whilst the associate is still engaged with the practice, they’re free to work down the road and see patients. No recourse.
That’s a massive red flag. Here, we will insist that new associate agreements get signed prior to completion, with proper restrictions applying both before and after termination.
Key point: Check whether restrictive covenants apply during the associate’s engagement, not just after they leave.
How Do You Get Sellers to Agree to Pre-Completion Agreements?
Getting sellers to agree when you insist on pre-completion agreements comes down to commercial negotiation.
You explain how vital the associates are to the practice. That them walking could have a detrimental effect on the business and the turnover.
This might be less of a concern if the buyer believes new associates are easy to find. Sometimes buyers are just relaxed and happy to deal with it post-completion.
In practice, I’ve only seen real issues crop up a handful of times.
But when they do crop up, they’re a pretty big issue.
Key point: The decision comes down to weighing the commercial importance of existing associates against the difficulty of replacing them.
What’s the Best Structure for Securing Associates?
There’s an alternative structure that works well in practice. Exchange contracts first, so the buyer is technically bound to complete. Then do introductions to the staff.
Make it a condition that associates sign new agreements or novations prior to completion.
If an associate doesn’t sign or doesn’t want to, the buyer can still pull out. Though that’s a commercial decision whether it’s worth losing the deal for the sake of one (or some) associates.
If the seller doesn’t want the risk of the deal falling through over this, they can suggest that they will use best endeavours to get the associates to sign new agreements or novations. This way, there’s no strict condition.
When existing associate agreements are solid (normal provisions, proper restriction clauses), novation is usually less hassle. Many associates nowadays get standard BDA contracts, which are considered fair industry wide.
Key point: Exchange first, meet staff, then make new agreements a condition of completion. This balances confidentiality with buyer protection.
Frequently Asked Questions
Do dental associates automatically transfer when I buy a practice?
No. Associates are self-employed contractors, not employees, so they don’t automatically transfer with the practice. You need to arrange new agreements separately.
What happens if I complete without new associate agreements in place?
You can’t enforce the restrictive covenants in their existing agreements because you’re not a party to those contracts. Associates can leave and compete freely.
Why won’t sellers let me speak to associates before completion?
Sellers want to keep the sale confidential. Telling associates beforehand risks them refusing to sign new agreements or leaving before the deal completes.
What’s a novation agreement?
A novation transfers the existing associate agreement from the seller to you as the buyer. This works well when the current agreements have proper terms and restrictions.
When should novation be used instead of new agreements?
Novation is simpler when existing associate agreements are solid with normal provisions and proper restrictive covenants. Many practices use standard BDA contracts, which are fair and comprehensive.
What should I check in associate agreements during due diligence?
Focus on restrictive covenants. Check whether they apply during the associate’s engagement (not just after they leave) and whether they prevent working at nearby practices or taking patients.
Can I exchange contracts before getting associate agreements signed?
Yes. You can exchange first (binding yourself to complete), meet the associates, then make new agreements a condition of completion. You can still pull out if associates refuse to sign.
How often do associate issues actually cause problems?
In my experience, real issues only crop up a handful of times. But when they do, they’re serious. Associates can leave immediately and take patients to competing practices.
What Separates Smooth Transitions from Messy Ones
Agree early on what position is going to be taken in regard to associates and their agreements.
For a buyer with a practice that’s reliant on associates, new agreements or novation as a condition of completion is a must.
That single decision prevents most of the problems I’ve seen in dental practice acquisitions.
The seller’s confidentiality concern is real. The risk of associates walking is real.
But the risk of buying a practice where you can’t enforce any restrictions on your key revenue generators? That’s the one that costs you.
Get this sorted early, not three days before completion.
Key Takeaways
- Self-employed dental associates don’t automatically transfer with sole trader practice acquisitions
- Without new agreements, you can’t enforce restrictive covenants preventing associates from competing
- Review restrictive covenants during due diligence to check they apply during engagement, not just after termination
- Exchange contracts first, then make new associate agreements a condition of completion to balance confidentiality with protection
- Use novation when existing agreements are solid (like standard BDA contracts) to simplify the process
- Decide your position on associates early in the transaction to avoid last-minute complications
- For practices reliant on associates, making new agreements a condition of completion prevents costly post-completion problems