Buying a practice: what to check about the building
The accountant reads the numbers and the lawyer reads the contract. Between them sits a tenancy nobody has assessed, and it is the part you cannot renegotiate later.
The short answer
Buying an established practice is mostly a financial exercise, and the diligence reflects that. Patient numbers, billings, staff contracts, equipment condition, goodwill. The building tends to be treated as a given, because it is already operating and somebody must have checked.
Key points
- You inherit the lease, including the make good obligation and any incentive clawback.
- An existing fitout is not evidence of a compliant fitout. Check it against current standards.
- Remaining term and options decide whether you can amortise any work you have to do.
- Ask for the occupancy certificate, the asbestos register and the backflow test records.
Buying an established practice is mostly a financial exercise, and the diligence reflects that. Patient numbers, billings, staff contracts, equipment condition, goodwill. The building tends to be treated as a given, because it is already operating and somebody must have checked.
Frequently nobody has, and the building is the item you cannot renegotiate after settlement.
The lease you are inheriting
An assignment hands you the lease as it stands, obligations included.
Remaining term and options. The first question, because it governs everything else. Three years left with no option is a very different purchase from three plus two plus five, and it decides whether any money you spend on the premises can be amortised or is simply gone.
Make good. You inherit it, usually in full, for a fitout somebody else built. If the clause requires return to base building and the practice has slab penetrations, lead lining and supplementary plant, that is a real liability sitting at the end of your term. Read it before you agree a price, and read our note on what make good actually costs.
Incentive clawback. If the outgoing owner took a fitout contribution or a rent-free period, check whether assignment triggers repayment and who bears it. This is a clause that quietly moves money at settlement and it is easier to resolve before the price is agreed than after.
Landlord consent. Assignment needs it, it takes time, and it can carry conditions such as a personal guarantee or a bank guarantee at a level the outgoing owner never had to provide.
The fitout is not evidence of compliance
A practice that has been operating for fifteen years demonstrates that it was acceptable when it was built, and nothing more. Standards move, and accreditation is assessed against what applies now.
The recurring findings are consistent enough to be a checklist. Clean and dirty utility combined into one room. A reprocessing bench that runs the wrong way, or was never a room at all, which the guide to 4815 and 4187 covers. Consulting room walls stopping at the ceiling grid so conversations carry over the top. No accessible WC, or one that does not meet AS 1428.1. Ventilation rates never assessed against AS 1668.2 because the tenancy was fitted out as an office.
None of these stop the practice trading today. All of them become yours, and they surface at the least convenient moment, which is usually your first accreditation cycle.
Documents to ask for
- The occupancy certificate or its state equivalent for the fitout, which tells you the work was approved rather than simply done.
- Approved plans and any development or planning approval, including its conditions, some of which continue.
- The asbestos register if the building predates 2004. Its absence is itself information.
- Backflow prevention test records, which should be annual and are often missing.
- Essential safety measures reports in Victoria, annually.
- Any fire safety statement or equivalent, current.
- Warranties and the defects position if the fitout is recent enough that either still runs.
Missing paperwork is not automatically a problem. It is a negotiating position, and it is better found before the price is agreed than after.
Then price the gap
The useful output of all this is a number: what it costs to bring the premises to where you need them, over what period, and whether the remaining lease term supports spending it.
Sometimes that number is small and the answer is obvious. Sometimes it changes the price you should pay, or tells you to negotiate a new lease rather than take an assignment of the old one. Occasionally it says the practice is worth buying and the premises are not, and the purchase is really a relocation with a patient list attached.
That is a legitimate outcome and a much better one to reach before settlement than eighteen months afterwards.
Sources and further reading
The RACGP Standards for what accreditation asks of a building, alongside retail leasing disclosure and the National Construction Code. General information rather than legal or financial advice on a specific purchase.
Standards for general practices, 5th edition. The physical-practice requirements behind general practice accreditation.
The Retail Leases Act 1994 framework and the disclosure a landlord owes a tenant, including on make good and outgoings. Every state has its own equivalent.
The National Construction Code: building classification, fire separation, egress, sanitary provisions and access.
Source for AS/NZS 4815 and 4187 reprocessing, AS 1428.1 access and AS 1668.2 ventilation. The standards themselves are purchased, not free.
Questions
What should I check about the premises when buying a practice?
The remaining lease term and options, the make good obligation you inherit, whether any incentive is clawed back on assignment, and whether the existing fitout meets current standards rather than the ones that applied when it was built. Then ask for the occupancy certificate, approved plans, asbestos register and backflow test records.
Do I inherit the make good obligation when I buy a practice?
On an assignment, generally yes and usually in full, for a fitout somebody else built. If the clause requires return to base building and the practice has slab penetrations, lead lining or supplementary plant, that is a substantial liability at the end of your term. Price it before you agree a purchase price.
Is an operating practice automatically compliant?
No. It demonstrates the fitout was acceptable when built. Standards change and accreditation is assessed against what applies now. Common inherited problems are combined clean and dirty utility, a reprocessing area that was never a proper room, consulting room walls stopping at the ceiling grid, and ventilation never assessed for clinical use.
Should I take an assignment or negotiate a new lease?
It depends on what the diligence turns up. A short remaining term, an onerous make good clause or a clawback triggered by assignment can all make a new lease the better route, and the landlord may prefer it too. Work out what the premises need first, then decide which instrument gets you there.
What documents prove the fitout was approved?
The occupancy certificate or its state equivalent, together with the approved plans and any development or planning approval and its conditions. If those cannot be produced, the work may have been done without approval, which becomes your problem on the next inspection and is a legitimate point of negotiation now.
Send us the floor plan
A site assessment tells you what the tenancy can take and what it will cost to get there, ideally before you have signed for it.