Heads of terms — sometimes called a heads of agreement or letter of intent — is the document that records what the buyer and seller have agreed in principle before the legal process begins. In a dental practice sale, the heads of terms document is non-binding on most commercial points. But it sets the framework for every subsequent negotiation: what you agree at heads of terms stage is almost always what you end up with at completion.
Dental practice sales have several features that make the heads of terms more complex than a generic business sale. The deal structure (asset vs share) has profound tax consequences for the seller. The NHS contract introduces a specific condition precedent with an unpredictable timeline. The CQC registration process adds a further timeline risk. And the transition period — particularly in DSO deals — is a substantive obligation that needs to be defined in advance. Each of these should be addressed in the heads of terms, not left for later.
What Heads of Terms Covers in a Dental Practice Sale
1. Total consideration and structure. The headline figure, and how it breaks down: upfront cash on completion, earn-out (where applicable), and vendor loan (where applicable). For DSO acquisitions, a significant portion of the consideration is typically deferred via earn-out — this should be specified, not summarised as a total.
2. Deal structure: asset sale or share sale. This is the single most important point to agree at heads of terms for an incorporated dental practice seller. An asset sale and a share sale have materially different tax consequences, different NHS implications, and different CQC implications. Sellers with BADR eligibility typically prefer a share sale (10% CGT vs 50–55% effective rate on an asset sale). Buyers typically prefer an asset sale (cleaner liability profile). The structure is a substantive commercial negotiation — it belongs in heads of terms, not in the SPA redline.
3. NHS contract conditions. For NHS practice sales, the NHS novation is a condition precedent to completion in an asset sale. The heads of terms should acknowledge: that the transaction is conditional on NHSE novation consent; the expected novation timeline for the relevant Integrated Care Board; and who bears the risk if novation is delayed beyond the long-stop date.
4. CQC registration timeline. In an asset sale, the buyer must obtain CQC registration before they can operate the practice — a process that typically takes twelve to twenty-four weeks. The heads of terms should set a realistic completion target date that allows for CQC preparation, and should specify a long-stop date that gives sufficient time for both NHS novation and CQC registration to complete.
5. BADR and deal structure (tax advice required). The heads of terms should be signed after the seller has obtained at least preliminary tax advice on BADR eligibility. If BADR is available, the seller should negotiate the deal structure accordingly. If BADR eligibility is uncertain, the heads of terms should not lock in an asset sale structure before the issue is resolved — restructuring after exchange is expensive and difficult.
6. Non-compete and non-solicitation. The scope, duration, and geographic reach of the seller’s post-completion restrictions. In dental practice sales, the non-compete typically covers the practice’s patient catchment area for two to four years. This needs to be defined in heads of terms — a vague non-compete at heads of terms stage becomes an aggressive clause in the buyer’s first SPA draft.
7. Transition period. Whether the seller will provide a post-completion transition period, for how long, and how it will be remunerated. In a DSO deal, the transition period may overlap with an earn-out period — the obligations during that overlap need to be defined. In a straightforward asset sale to an individual buyer, a three-to-six-month transition is standard.
8. Exclusivity. The exclusivity period during which the seller agrees not to negotiate with other buyers. Four to eight weeks is standard for straightforward transactions; larger practices with complex structures may require longer. Ensure the exclusivity period is long enough for the buyer to complete due diligence and for NHS novation to begin — but build in protections against the buyer using exclusivity to sit on their hands.
9. Confidentiality. How information provided during due diligence will be protected, and when and how staff and patients will be notified.
The NHS and CQC Timeline Problem
The most common reason dental practice transactions miss their target completion dates is that the NHS novation and CQC registration timelines were not adequately accounted for at heads of terms stage.
NHS novation in most ICB areas takes four to eight weeks from application to consent, but some commissioning areas are slower and less predictable. CQC registration takes twelve to twenty-four weeks. Both processes need to be running before exchange if you want a realistic path to completion within six to nine months of going to market.
The heads of terms should:
- Set an exclusivity period that is long enough for the buyer to begin both applications (not just do financial due diligence)
- Set a long-stop date that genuinely reflects the NHS and CQC timelines, not an optimistic target
- Specify what happens if NHS novation or CQC registration is not achieved by the long-stop — who has the right to extend, and on what terms
Heads of terms that set a completion date of “60 days from exchange” without accounting for NHS and CQC timelines create problems that surface at a very expensive point in the transaction.
DSO-Specific Considerations
Where the buyer is a DSO or corporate dental group, the heads of terms will often include:
Earn-out structure. DSOs routinely include an earn-out component (typically 20–35% of total consideration) linked to NHS UDA delivery or practice EBITDA over twelve to thirty-six months post-completion. The heads of terms should specify: the earn-out metric, the measurement period, the earn-out payment schedule, and the principal non-interference protections. A vague “earn-out to be agreed” at heads of terms stage becomes a one-sided DSO-drafted mechanism in the SPA.
Lock-in obligations. Some DSO deals include an obligation for the selling principal to remain engaged clinically for part or all of the earn-out period. This is a substantive obligation — it affects the seller’s professional plans and must be clearly defined, paid, and time-limited.
Integration provisions. DSOs may seek to integrate the practice into their clinical governance, branding, and operational frameworks. The heads of terms should record what the buyer has agreed (or not agreed) about clinical autonomy, branding, and staff retention.
When to Instruct a Solicitor
Before heads of terms are signed. Your solicitor should review the draft heads of terms before you execute it. A specialist dental solicitor will identify: deal structure ambiguity that should be resolved before signing; NHS and CQC timeline risks; earn-out provisions that need to be defined more precisely; and non-compete provisions that are broader than commercially reasonable.
The cost of a heads of terms review is small relative to the cost of fixing problems that were locked in before legal work began.
For the full picture of how a solicitor supports a dental practice sale, see how to sell your dental practice. For guidance on what buyers examine after heads are agreed, see dental practice due diligence explained.
Contact our team for a confidential discussion about selling your dental practice →
Frequently Asked Questions
Are heads of terms legally binding in a dental practice sale?
Most provisions are expressly non-binding — they record the parties’ intention but do not create enforceable obligations until the SPA is signed. The exceptions are typically exclusivity (the seller agrees not to approach other buyers during the defined period) and confidentiality. All commercial terms — price, earn-out mechanics, structure — become binding only when the Share or Asset Purchase Agreement is signed.
Why does the deal structure need to be agreed at heads of terms stage?
An asset sale and a share sale have fundamentally different tax, NHS, and CQC implications. For sellers with BADR eligibility, the structure can be the difference between 10% CGT and an effective rate of 50–55%. Attempting to change the structure after heads of terms are signed is expensive and gives buyers leverage to reduce the price. Both parties should take specialist tax advice before the heads are signed.
How long should the long-stop date be in a dental practice heads of terms?
For an NHS practice, the long-stop needs to accommodate both NHS novation (four to eight weeks) and CQC registration (twelve to twenty-four weeks), as well as the legal process. A long-stop of twenty-four to thirty weeks from the date heads are signed is a realistic baseline. A shorter long-stop is possible only where CQC and NHS pre-work has been completed before exchange.
What earn-out terms should be in heads of terms for a DSO deal?
At minimum: the earn-out metric (NHS UDA delivery, revenue, or EBITDA), the measurement period, the payment schedule, the floor and ceiling amounts, and the buyer’s principal non-interference obligations. Earn-out mechanics left undefined at heads of terms stage will be drafted by the DSO’s solicitors — invariably in the DSO’s favour. The heads of terms is your best opportunity to define the earn-out on neutral terms.