Buying a Care Home: Legal Checklist

A care home cannot be bought in the way an ordinary trading business can, because the right to operate it does not belong to the business. Registration under section 10 of the Health and Social Care Act 2008 is personal to the legal entity carrying on the regulated activity, it is not an asset, and it cannot be assigned, sold or transferred with the goodwill or the freehold. That single point drives the structure, the timetable and most of the risk in a care home acquisition.

We act for buyers and sellers of care homes, and the deals that go wrong are rarely the ones where the price was mispitched. They are the ones where the parties treated the Care Quality Commission as a post-completion formality rather than the longest item on the critical path. This checklist sets out what a care home acquisition demands over and above the standard process we describe in our step-by-step guide to buying a business in the UK.

Registration does not transfer, so the structure decides your timetable

Carrying on a regulated activity without being registered is a criminal offence under section 10(1) of the Health and Social Care Act 2008, punishable on indictment by a fine or up to 12 months’ imprisonment. Accommodation for persons who require nursing or personal care is a regulated activity, so the entity that operates the home on the day after completion must already hold registration for it. There is no grace period and no transitional cover.

This is where the choice between a share purchase and an asset purchase stops being a tax question and becomes a regulatory one. The general trade-offs are covered in our note on share sale versus asset sale. In the care sector the regulatory consequence usually dominates.

Share purchase: the registered provider survives

On a share purchase, the buyer acquires the shares in the company that is the registered provider. The legal entity carrying on the regulated activity does not change, so no new provider registration is needed and the registration is not disturbed. This is the reason most care home deals above a certain size are structured as share sales, and it is frequently the only reason.

It is not, however, a free pass, and a good deal of published commentary overstates how clean it is. Two things still have to happen. First, regulation 15 of the Care Quality Commission (Registration) Regulations 2009 requires the registered person to notify the Commission in writing, as soon as it is reasonably practicable, of a change of director, secretary or other similar officer of the body, and of any change of nominated individual. A share purchase that installs a new board triggers that duty immediately. Second, the incoming directors have to satisfy regulation 5 of the Health and Social Care Act 2008 (Regulated Activities) Regulations 2014, which we deal with below. A buyer whose nominee directors cannot pass that test has bought a registration it cannot lawfully staff.

The other side of the coin is that a share purchase takes the company’s entire history with it: historic enforcement, employment claims, unpaid pension contributions, warranty claims from earlier deals, tax exposure. That is what diligence, warranties and the disclosure process are for, and it is why share deals in this sector need a far wider warranty set than a comparable trading business.

Asset purchase: a fresh registration, and it sits on the critical path

On an asset purchase the buyer takes the property, equipment, goodwill, contracts and staff, but not the seller’s registration. The buyer’s own entity must be registered, for the right regulated activities, at the right location, before it starts operating. If the buyer already holds a CQC registration it applies to add the location to its existing registration. If it does not, it applies as a new provider.

CQC does not publish a guaranteed decision period for either route, and we would be cautious about any adviser who quotes one as if it were fixed. What we can say from practice is that it is routinely the longest single item in the transaction, that it is driven by the quality of the application rather than the complexity of the deal, and that it should be started in parallel with heads of terms rather than after exchange. On an asset purchase, the registration application is the completion date.

The CQC sale and transfer process, step by step

Where a registered service changes hands, CQC runs a specific procedure it calls a sale and transfer, and its mechanics are widely misunderstood. Both the outgoing and the incoming provider make applications, and both must tell CQC about the other. CQC then links the two applications and assesses them together. Critically, CQC completes the registration only when it receives formal confirmation from both providers’ legal representatives that the sale and transfer has completed. Your solicitors are therefore part of the regulatory process, not just the contractual one, and the completion mechanics in the sale agreement have to be drafted to produce that confirmation on the day.

Two features of the process are worth building into the deal timetable deliberately. CQC will issue a position statement letter on request, confirming that it does not propose to set non-routine conditions on the registration and does not expect to refuse the application. That letter is the closest thing to regulatory certainty a buyer will get before completion, and it is the natural trigger for a condition precedent. CQC also expects to be told as soon as possible if the expected completion date moves, and warns that serious delay may cause it to reassess the application. A deal that slips twice can find itself back at the start of the queue.

The registered manager condition

Under section 13 of the Health and Social Care Act 2008, a provider’s registration must in prescribed cases be subject to a registered manager condition: a condition that the activity, or the activity as carried on at particular premises, must be managed by an individual separately registered with CQC as a manager for that activity. Care homes carry that condition. Registration as a manager is itself an application under section 14, granted or refused by CQC under section 15, and regulation 7 of the 2014 Regulations requires the manager to be of good character and to have the necessary qualifications, competence, skills and experience to manage the activity.

The practical consequence is that the incoming provider must make sure a registered manager is in post and registered at the location. During a sale and transfer, the existing registered manager can apply to continue their registration under the incoming provider, cancel their registration, or remove the location from their registration if they are staying with the seller. None of those happens automatically.

This makes the registered manager a commercial issue, not an HR one. A home whose manager intends to leave at completion, or who will not consent to continue under the new owner, is a home the buyer may not be able to operate lawfully on day one. We would always want the manager’s intentions established in writing, and the buyer protected by a condition precedent, a retention, or both, where the position is unresolved. Expect the seller to resist a warranty on a third party’s future intentions, and expect to negotiate hard on it.

Fit and proper persons: the directors test

Regulation 5 of the Health and Social Care Act 2008 (Regulated Activities) Regulations 2014 prohibits a service provider from appointing or having in place an individual as a director, or performing functions equivalent or similar to those of a director, unless that individual satisfies every one of the requirements in regulation 5(3). Those requirements are that the individual is of good character; has the qualifications, competence, skills and experience necessary for the position; is able by reason of their health, after reasonable adjustments, to perform the intrinsic tasks of the role; has not been responsible for, privy to, contributed to or facilitated any serious misconduct or mismanagement, whether unlawful or not, in the course of carrying on a regulated activity; and is not caught by any of the grounds of unfitness in Part 1 of Schedule 4.

Regulation 5(5) requires the provider to have the information specified in Schedule 3 available for supply to CQC for each such individual, and regulation 5(6) requires the provider to act where a serving director stops meeting the test. For a buyer backed by private equity, a family office or an overseas investor, this needs working through before the board is constituted. Someone who sits on the investment committee and directs the operating company’s decisions may be performing functions equivalent to those of a director for regulation 5 purposes, even if they are not on the register at Companies House. Getting that assessment wrong is one of the few ways a buyer can create a regulatory breach on completion day through its own structuring.

Ratings and inspection history: the buyer inherits them

Most commentary on care home acquisitions tells buyers to read the latest inspection report. That is necessary but it is not the point that actually bites. Since 1 April 2019, where a registration application involves a change of ownership or address at an existing location, CQC continues the regulatory history of that location and displays the previous rating and inspection report against the new location record. CQC’s own guidance says that where a location is acquired by a new provider, that provider is considered to inherit the previous location history, and that although the rating was not awarded to them they are responsible for maintaining and improving the service, including addressing any issues from the last inspection.

So the rating is not wiped by the deal, on either structure. CQC continues the history where a location moves premises, where a registered legal entity changes its business structure, and where a location is sold to or taken over by a new provider, including mergers. It applies regardless of whether the location was operating at the time. Where two or more locations merge and the predecessors hold different ratings, CQC says it will normally continue the history of the lowest rated location. It will not continue a history where there is no location-level rating or report to continue, where a predecessor transfers only some services and remains active, or where a location is absorbed into another existing location.

CQC also says it will not notify providers individually when it continues a history. A buyer paying a premium on the assumption that a “requires improvement” rating disappears with the old entity has mispriced the deal. Conversely, a buyer acquiring a good or outstanding home should understand that it inherits a rating it must now defend, and that the inherited assessment feeds CQC’s risk-based decision about when to inspect next.

Local authority and ICB contracts

For most homes, publicly funded placements are the bulk of the revenue, and those placements sit under framework agreements or spot contracts with one or more local authorities and, for nursing or continuing healthcare funded residents, with an integrated care board. The contractual position differs sharply by structure.

On an asset purchase, these contracts do not move with the business. Each one has to be novated to the buyer or assigned where the contract permits it, which means the commissioner’s agreement is required for every contract the buyer needs. On a share purchase the contracting entity is unchanged, so the contracts continue, but almost all public sector care contracts contain change of control provisions, and many contain restrictions on assignment and subcontracting. Those clauses typically require notice, consent, or prior consultation, and some give the commissioner a termination right.

Two practical points come up in nearly every deal we run. First, contracts are often operating well past their stated initial term on the basis of informal rollover rather than a written extension, which means the buyer may be acquiring revenue with no enforceable contractual term behind it. Second, commissioners move slowly, and a consent request issued after exchange will delay completion. We review the commercial contracts for change of control triggers early, and build the consents into the conditions precedent rather than the post-completion list.

Residents’ contracts, fees and the CMA’s position on a change of ownership

Residents’ agreements are consumer contracts, and the Competition and Markets Authority has published detailed advice on how consumer law applies to care homes for older people. It addresses changes of ownership directly, and this is the part of a care home acquisition that is most often missed.

The CMA’s position is that where ownership of a care home changes hands, the rights and obligations under residents’ contracts are likely to transfer with it, and that to comply with consumer law residents’ legal position should be unaffected by the transfer. Contracts cannot be unilaterally varied in those circumstances and may only be terminated in accordance with their terms, so the CMA says it would expect a new owner to abide by the terms of the resident’s contract, including its provisions on variation. A term giving the home a right to assign or transfer its rights and obligations to a new owner is likely to infringe consumer law where it may prejudice the resident’s rights, for example if it could leave existing residents dealing with someone offering an inferior service or seeking to reduce their rights.

The CMA goes further on process. It says providers should consult residents and their representatives before transferring rights and obligations, so that they understand the implications, and must obtain their consent to any transfer or change that may adversely affect them, before it takes place. It adds that giving residents a penalty-free right to exit if they object is unlikely to offer sufficient protection.

For a buyer, three conclusions follow. A business plan that depends on raising fees shortly after completion needs to be tested against the actual variation clauses in the residents’ agreements, not against the market. The resident consultation and consent exercise takes time and has to be scheduled before completion, which in turn affects how and when the deal can be announced. And the residents’ contract suite is a diligence item in its own right: unfair variation terms, unlawful fee-after-death provisions, or guarantor and upfront payment terms that do not comply with the CMA’s advice are an inherited liability on a share purchase and a reputational and enforcement risk on either structure. We would want this reviewed alongside the warranty and disclosure package rather than treated as operational detail.

Deferred payment agreements and charges over residents’ property

Where residents’ fees are being met under a deferred payment agreement, the funding arrangement is statutory. Section 34 of the Care Act 2014 allows regulations to require or permit a local authority to agree not to require payment of a specified part of the amounts due from an adult, or repayment of a loan made for the purpose of obtaining care and support, until a specified time. Section 34(4) and (5) allow the authority to require adequate security, which may include a charge over the adult’s legal or beneficial interest in the property they occupy or used to occupy, or a guarantee from another person.

For a buyer, that means a part of the fee income is not simply a debtor balance. It depends on a local authority arrangement secured against a third party’s property, with its own repayment trigger, and it needs to be identified, quantified and reflected in the completion accounts and the debt mechanics. Where the seller has been running informal arrangements of its own alongside the statutory scheme, those need separating out and documenting.

Staff: TUPE, the sponsor licence and sponsored workers

On an asset purchase, the Transfer of Undertakings (Protection of Employment) Regulations 2006 will almost always apply, so the staff transfer automatically on their existing terms, with their continuity of service and with liabilities for past acts, and both parties take on information and consultation duties. On a share purchase there is no change of employer, so TUPE is not engaged. We cover the mechanics in our note on TUPE when buying or selling a business, and our employment team handles the consultation process alongside the deal.

Care sector payroll carries risks that a generic employment diligence exercise will miss: sleep-in and waking night arrangements, holiday pay calculated on the wrong reference period, unpaid travel time for staff covering more than one site, agency reliance, and the treatment of self-employed contractors. Each of these is a historic liability that follows the business on an asset purchase and the company on a share purchase.

Immigration sponsorship is the item most likely to be left too late. Home Office sponsor guidance is explicit that a sponsor licence is not transferable. Where there is a change in direct ownership of the business, including a sale as a going concern or a share sale that transfers the controlling number of shares, the seller’s licence will be revoked, or made dormant if the sponsored workers have transferred to another sponsor’s licence, and the new owners must apply for their own licence if they do not already hold one and wish to continue employing sponsored workers. The change must be reported through the sponsorship management system within 20 working days.

Where workers move under TUPE, the guidance allows them to continue without a fresh visa application and without a new certificate of sponsorship, provided the new sponsor holds a valid licence in the relevant route, has confirmed it accepts responsibility for them, and their duties are unchanged. A buyer without the right licence must apply for one, or apply to extend the scope of an existing licence, within 20 working days of the transfer. If it does not make a valid application in that window, or the application is refused, the workers who moved across will have their permission cancelled. In a home where a meaningful share of the care staff are sponsored, that is an operational failure and a regulatory one at the same time.

Recruiting replacements is no longer a straightforward alternative. Under paragraph SW 6.1B of the Immigration Rules Appendix Skilled Worker, sponsorship in occupation codes 6135 care workers and home carers and 6136 senior care workers is now limited to applications for permission to stay. The applicant must either already hold Skilled Worker permission sponsored in one of those codes, or have been legally working for that sponsor in one of them for at least the three months ending on the date the certificate of sponsorship was issued, with the application made before 22 July 2028. In other words, these roles can no longer be filled from overseas, and the three month requirement is tied to the sponsor, which is exactly what changes on an asset purchase. Workforce modelling for a care home acquisition has to be built on that basis.

Property, title and security

The property work on a care home is closer to a commercial development acquisition than to a conveyance. Beyond the usual investigation of registered title, we would expect to see planning permission that actually authorises use as a residential care home with nursing where nursing is provided, and permissions for every extension and conversion the home has had, since older homes frequently carry unauthorised additions. Restrictive covenants limiting use need checking, with a defective title indemnity policy considered where a breach is historic and insurable. Fire safety documentation, the fire risk assessment, and any enforcement correspondence from the fire authority deserve separate attention, because a home that cannot evidence compliance is a home that can be prevented from operating.

Where the home is leasehold, the lease term, repairing obligations, alienation provisions and any landlord consent required for a change of control all have to be worked through, and a short residual term undermines the valuation regardless of trading performance. On a share purchase, existing security registered against the target, including debentures and legal charges, has to be discharged or released at completion, and release undertakings must be in place before exchange. Our commercial property team runs this alongside the corporate workstream rather than after it.

Sector due diligence: the questions a standard list will not ask

The standard corporate, commercial, employment and tax enquiries all apply, and we set those out in our note on legal due diligence when buying a business. The sector-specific layer below is what separates an adequate care home diligence exercise from a competent one. Most of it is information the seller holds but will not volunteer.

Two of these deserve emphasis. Notification records are the single most informative document set in a care home diligence exercise, because regulation 18 of the Care Quality Commission (Registration) Regulations 2009 requires the registered person to notify CQC without delay of serious injuries to service users, any abuse or allegation of abuse, any incident reported to or investigated by the police, and any event that threatens the provider’s ability to continue carrying on the regulated activity safely. Comparing what was notified against the home’s own incident log tells a buyer more about the quality of governance than any inspection report will.

Occupancy and fee data is the other. A home trading at high occupancy on legacy local authority rates with no contractual uplift mechanism is a very different asset from one at the same occupancy with a self-funded mix and enforceable annual review clauses, even though the two produce identical current year figures.

How this compares with other regulated acquisitions

The pattern we have described is not unique to care homes. Any acquisition of a regulated healthcare business turns on whether the regulated entity survives the transaction, and the regulator’s process sets the timetable. The detail differs: the equivalent analysis for a community pharmacy involves the NHS pharmaceutical list and General Pharmaceutical Council registration rather than CQC, and we set that out in our note on buying a pharmacy. If you are weighing up a care home against another healthcare target, our pharmacies and care homes pages set out how we work in each.

What this means for you

If you are buying a care home, the sequence matters more than almost anything else. Decide the structure on regulatory grounds first and tax grounds second, because the structure determines whether you need a fresh registration and therefore how long the deal takes. Start the CQC application at heads of terms. Establish the registered manager’s position in writing before you commit. Test your directors against regulation 5 before you constitute the board. Get the commissioner consents and the resident consultation moving early. And price the home on the basis that you will inherit its rating, its notification history and its fee structure, because you will.

We act for buyers and sellers on both sides of care home transactions, from single-home owner-managed businesses to small groups, and we run the regulatory, property, employment and corporate workstreams together rather than in sequence. Tax treatment of the structure you choose should be confirmed with your accountant or tax adviser alongside the legal work.

If you are considering a care home acquisition and would like to talk through the structure and the timetable before you commit to heads of terms, speak to our corporate team about buying a business, or call us on +44 207 566 1188 or email info@gurvelegal.com. If you are on the other side of the table and preparing a home for sale, our selling a business team can help you get the regulatory and contractual position straight before a buyer finds it.