When a buyer makes an offer for your dental practice and you accept it in principle, the next document produced is a heads of terms. This is the commercial framework for the deal — the agreed skeleton from which the formal sale and purchase agreement will be drafted. Getting heads of terms right is not a formality. It is the most important document you will sign before the SPA, and the most underestimated one.
This guide covers what heads of terms are, what a dental practice HOT must contain, why the earn-out EBITDA definition is the most contested term, how to handle the CQC and NHS novation conditions, and what to do once heads are signed.
1. What Heads of Terms Are — and Why They Matter
A heads of terms document — also called an HOT, a letter of intent, or a memorandum of understanding — is a summary of the key commercial terms on which both parties have agreed before instructing solicitors to draft the full legal agreement. It is typically two to five pages long. It is largely, but not entirely, non-binding.
The non-binding elements include the purchase price, transaction structure, earn-out mechanics, conditions precedent, and transition obligations. The parties are recording agreement in principle, not making a legally enforceable commitment on those points.
The binding elements are exclusivity and confidentiality. Once heads are signed, you are obliged to deal exclusively with that buyer for the exclusivity period, and both parties are bound by any confidentiality obligations in the document.
The reason heads of terms matter beyond their limited legal force is this: the sale and purchase agreement is drafted from them. Whatever is ambiguous or undefined in the HOT becomes a point of contention in the SPA. Legal costs mount, timelines extend, and deals fall through over issues that should have been resolved at heads of terms stage. Agreeing imprecise heads quickly is not a commercial advantage — it is a problem deferred to the most expensive phase of the transaction.
2. What a Dental Practice Heads of Terms Must Contain
A complete HOT for a dental practice sale should address the following points explicitly.
Headline consideration and structure. The total purchase price and how it is composed — completion payment, earn-out (if any), and the proportion of each. A headline figure without a composition breakdown is not a complete price term.
Completion payment. The amount payable at legal completion, confirmed as cash unless otherwise specified. Any conditions attached to the completion payment — for example, normalisation adjustments for working capital — should be identified here.
Earn-out EBITDA definition. See section 3. This deserves its own heading and specific drafting in the HOT. Do not leave this to the SPA.
Transaction structure. Whether the sale is structured as an asset sale or a share sale. This has material tax consequences for both parties and affects how goodwill, equipment, property, and liabilities are treated. The HOT should state the agreed structure; if not yet agreed, it should record that agreement is outstanding and identify the deadline for resolving it.
Conditions precedent. The conditions that must be satisfied before the buyer is obliged to complete. For dental practice sales, these typically include: CQC registration for the incoming provider, NHS contract novation, satisfactory financial and clinical due diligence, and (where relevant) lender financing approval. Each condition should be accompanied by a target timeframe for satisfaction.
Long-stop dates. The date by which all conditions must be satisfied or waived, failing which either party may withdraw. CQC and NHS novation conditions in particular must carry a realistic long-stop, as both involve third parties with their own processing timelines. A long-stop that is too short creates unnecessary pressure; one that is too long locks you in indefinitely.
Exclusivity period. The period during which you agree not to negotiate with other buyers. Four to eight weeks is standard for a dental practice transaction. See section 5 on keeping this short.
Transition period obligations. The period post-completion during which you remain involved in the practice, and what specifically you are required to do. Vague transition provisions — “the seller will assist with handover for a reasonable period” — create disputes. Specify the duration, the minimum clinical sessions, the management responsibilities, and the basis of any remuneration.
Key employee provisions. Whether any members of staff are subject to specific retention arrangements, and whether the buyer is relying on any named individuals remaining post-completion. Where a practice associate is essential to the buyer’s EBITDA assumptions, their employment terms post-completion should be addressed in heads.
3. The Earn-Out EBITDA Definition: The Most Contested Term
For any deal containing a deferred earn-out element, the single most important drafting task at HOT stage is agreeing how earn-out EBITDA will be defined and calculated. This is consistently the most contested term in dental practice SPA negotiations, and the reason is straightforward: the buyer will control the cost base post-completion, and if the definition is loose, they can make deductions that reduce earn-out EBITDA without breaching the agreement.
A properly negotiated earn-out EBITDA definition for a dental practice sale should explicitly exclude:
- Group overhead recharges and management charges imposed by the DSO or group entity
- Integration costs incurred by the buyer in connecting the practice to its systems, branding, or operating model
- Any costs not present in the practice’s standalone profit and loss account at the date of completion
- Supplier changes the buyer makes post-completion that increase the practice’s cost base beyond pre-completion levels
The benchmark is the practice as it was operating at the point of valuation. If the buyer acquires the practice and then introduces central charges, rebrands the fit-out, and subscribes to group software, those are costs of the acquisition, not costs of running the practice the seller handed over. An earn-out calculated after those deductions is not the earn-out the headline price implies.
Agree the EBITDA definition in the heads of terms. If the buyer resists specificity at this stage, that resistance is itself information.
4. CQC and NHS Novation Conditions
Two of the conditions precedent specific to dental practice sales carry external timelines that neither party controls: CQC registration for the incoming provider, and novation of the NHS contract to the new entity.
CQC registration for a new dental provider can take several months. The CQC’s processing times vary, and applications with incomplete documentation take longer. The incoming buyer should have submitted, or be ready to submit, a complete application at the point heads are signed. The HOT should record the date of submission (or planned submission) and attach a long-stop provision realistic to CQC timelines — typically four to six months from heads.
NHS contract novation requires the commissioner’s approval and follows NHS England’s own process. Timelines vary by region and commissioner. Some novations proceed within weeks; others take considerably longer. The HOT should confirm the buyer’s NHS status (whether they are an existing NHS provider or a new entrant), identify the commissioner, and attach a long-stop date for novation that reflects the actual likely timeline.
Where either condition is not met by the long-stop, both parties need clarity on what happens next — whether the long-stop can be extended by agreement, and whether there is any break fee or compensation if the deal does not proceed through no fault of either party.
5. Negotiation Priorities at Heads of Terms Stage
If you can only resolve four things carefully before signing heads, prioritise these:
Earn-out EBITDA definition. Agree it explicitly, in writing, in the heads of terms. It becomes a drafting instruction for the SPA, and it is far easier to get right here than in a legal negotiation three months later.
Conditions with timeframes. Every condition precedent should have a target satisfaction date and a long-stop. Conditions without timelines are open-ended obligations that can stall a deal indefinitely.
Exclusivity as short as possible. Counter any request for exclusivity beyond eight weeks. Four to six weeks is sufficient for a motivated buyer to progress due diligence and instruct solicitors. Extended exclusivity periods benefit the buyer, not the seller, and reduce your optionality if the buyer encounters problems.
Transition obligations specifically defined. Agree the duration, the minimum sessions, the scope of management involvement, and the remuneration — in the heads, not deferred to the SPA. Transition disputes are one of the most common sources of post-completion litigation in dental practice sales.
6. After Heads of Terms Are Signed
Once heads are agreed and signed, instruct specialist dental solicitors — not general commercial solicitors. The legal issues in a dental practice sale (CQC compliance, NHS contract novation, associate agreements, UDA obligations, CQC conditions of registration) are specific to healthcare transactional law. A general commercial solicitor who does not practise in this area routinely misses issues that a specialist identifies on first review.
The SPA is drafted from the heads of terms. The better the heads, the smoother the legal process. Expect the SPA drafting and negotiation phase to take four to eight weeks under normal conditions, longer where conditions precedent are outstanding or the transaction structure is complex.
Find out what your dental practice is worth →
For a complete guide to the sale process, see how to sell your dental practice. For context on how EBITDA multiples and valuations are set before heads of terms are reached, see dental practice valuation explained.
Frequently Asked Questions
Are heads of terms legally binding in a dental practice sale?
Mostly no — with two exceptions. The exclusivity obligation and any confidentiality provisions in the heads of terms are binding from the point of signing. The commercial terms — price, earn-out, conditions, transition — are recorded as agreed in principle but are not legally enforceable until the final SPA is executed. This does not mean they are unimportant: the SPA is drafted from the heads, and poorly drafted heads produce disputed SPAs.
What should be in the earn-out EBITDA definition in heads of terms?
The definition should specify what is included in EBITDA for earn-out purposes and, critically, what is excluded. Exclusions should include any group overhead recharges, management charges, DSO integration costs, and any costs introduced by the buyer post-completion that were not present in the standalone practice. The benchmark is the practice’s cost base at the point of completion, not the buyer’s post-acquisition structure.
How long should exclusivity be in a dental practice HOT?
Four to eight weeks is standard and reasonable. Exclusivity longer than eight weeks is rarely in the seller’s interest. During exclusivity you cannot advance negotiations with other buyers, so if the original transaction does not proceed, an extended exclusivity period costs you time and marketing momentum. Buyers seeking three months or more of exclusivity should be countered with a shorter period tied to specific due diligence milestones.
Why do CQC and NHS conditions need a long-stop date?
Because both conditions involve third parties — the CQC and the NHS commissioner — with their own processes and timelines, neither of which are within the buyer’s or seller’s control. Without a long-stop, a buyer could sit on a conditional contract indefinitely. A long-stop date gives both parties clarity: if conditions are not met by the agreed date, either party can withdraw without breach.
When should I instruct a solicitor for a dental practice sale?
Instruct a specialist dental solicitor as soon as heads of terms are signed. Instructing before heads are agreed means legal costs begin before the commercial framework is settled. Instructing immediately post-heads, with a complete and well-drafted heads document to give to your solicitor, is the most efficient approach.