How to Expedite the Senior Living Sales Process (part 2 of 2)– by Jason Punzel
Last month we discussed how to expedite the closing process by conducting due diligence simultaneously while negotiating a Purchase and Sale Agreement (PSA). There is no reason why due diligence cannot start upon signing a LOI. An Access Agreement needs to be put in place to protect the buyer and seller during due diligence, but that is a short agreement which takes little negotiation. The buyer and the buyer’s lender must be ready to order third party reports very quickly as these reports take 4-6 weeks to get back, but well organized, experienced buyers can have this ready upon signing the LOI.
A second way to expedite the closing process is by having the buyer apply for their license (CHOW/Change of Ownership) during the due diligence period. Typically, it takes from 30-90+ days to get a license from the time of application, depending on the state. While some states, like California, allow for an interim management agreement so a buyer can “use” the seller’s license while waiting to receive their license, many states do not allow this. Buyers usually apply for their license at the end of due diligence, thus, the soon as the closing can take place is the time it takes to get their license. However, if the buyer applies during due diligence, a closing can take place much quicker after the end of due diligence.
While most states require some type of notification to residents, typically 30-60 days prior to closing, this requirement is usually a shorter period than it takes to get a license. Thus, an owner can still wait to notify residents and employees until after the end of due diligence (protecting confidentiality) but shorten the closing process by 30-60 days after the end of Due Diligence.
However, some buyers do not want to spend the time and money applying for a license until the end of due diligence when they know for sure they are moving forward with the transaction. Additionally, some sellers do not want the State to know of the pending sale until the end of due diligence for the same reasons.
There is some risk in terms of time and money when having the buyer apply for their license before the end of due diligence. However, given that it can potentially save 30-60 days, it is something both the buyer and seller should consider while negotiating the LOI.