Dental Practice Purchase Contingencies Explained for Buyers

In Summary

• Contingencies are conditions in your purchase agreement that must be satisfied before the deal becomes binding—if they're not met, you can walk away and recover your earnest money deposit
• Earnest money typically represents 5-10% of the purchase price and demonstrates serious intent, but it's only protected while contingencies remain in place
• Each contingency should specify an exact timeline and clear removal conditions—vague language creates disputes about whether you've actually satisfied the requirement
• Once you remove a contingency in writing, you forfeit that exit option permanently, so removal should only happen after you've fully verified the condition
• The most common contingencies protect your ability to walk away if due diligence reveals problems, financing falls through, or the landlord won't assign the lease

Contingencies Give You Defined Exit Points Before You're Committed

A contingency is a condition that must be satisfied before your purchase becomes legally binding. If that condition isn't met within the agreed timeline, you can terminate the agreement and recover your earnest money deposit. Without contingencies, walking away means forfeiting that deposit—typically 5-10% of the purchase price.

Earnest money demonstrates you're a serious buyer. Sellers want assurance you won't disappear after they've taken the practice off the market and turned away other offers. But once you wire that deposit, it's at risk. Contingencies are the only mechanism that protects it.

Each contingency creates a specific exit point. A due diligence contingency lets you walk away if you discover undisclosed patient attrition or equipment problems. A financing contingency protects you if your lender declines the loan or offers unacceptable terms. A lease contingency gives you an out if the landlord won't assign the lease or demands rent increases that break your pro forma.

Where buyers lose leverage is in how contingencies are written. A vague due diligence clause that says "buyer may review practice records" doesn't specify what triggers your right to terminate. Does discovering a 15% patient loss over two years qualify? What about a single unresolved malpractice claim? Without defined standards, you'll end up negotiating whether the issue is "material" enough to justify walking away.

Strong contingencies include three elements: a defined timeline, a clear removal condition, and an explicit termination right. For example: "Buyer has 45 days to complete due diligence. If Buyer identifies any material discrepancy in patient records, collections data, or equipment condition, Buyer may terminate this agreement by written notice and recover the full earnest money deposit."

Contingencies appear in both the Letter of Intent and the Asset Purchase Agreement, but only the APA language is legally binding. The LOI sets expectations—how long due diligence will last, what financing terms you're pursuing, whether lease assignment is required—but those terms get formalized in the APA. If your LOI specifies 60 days for due diligence but the APA says 30, the APA controls.

Once you remove a contingency in writing, you lose that exit option permanently. Removal should only happen after you've verified the condition is satisfied—not because the seller is pressuring you to "show good faith" or because you're approaching the deadline. If your financing contingency expires before your lender issues a commitment letter, you're now committed to close even if the loan falls through.

The contingencies covered in the next sections—due diligence, financing, and lease assignment—appear in nearly every dental practice purchase. Structuring them correctly is what keeps your earnest money protected while you verify the deal matches what the seller represented.

The Due Diligence Contingency: How Long You Have to Verify Everything

The due diligence contingency defines the window during which you can investigate the practice's financial records, patient charts, equipment condition, and operational systems—and walk away if what you find contradicts what the seller represented. Most agreements set this period between 10 and 30 days, though larger practices or multi-location acquisitions often justify 45–60 days.

What you accomplish during this window determines whether you're buying the practice you think you're buying. You're verifying collections data by comparing tax returns to practice management software reports, auditing patient charts to confirm retention rates match what the seller claimed, and reviewing accounts receivable aging to identify how much of the stated revenue is actually collectible. If the seller represented $800,000 in annual collections but the software shows $680,000, that's a material discrepancy—and grounds to renegotiate or terminate.

The contingency should specify exactly what records the seller must provide and by when. A common structure: "Seller will deliver three years of profit and loss statements, tax returns, patient management software reports, and accounts receivable aging within five business days of execution. Buyer will have 30 days from receipt to complete due diligence." Without that delivery deadline, sellers can delay producing documents and eat into your review time.

Material discrepancies give you the right to walk away or renegotiate. Inflated collections, undisclosed liabilities, or missing patient records all qualify. Minor issues—outdated equipment that still functions, a single negative online review, or a hygienist planning to retire in two years—don't typically justify termination, though they might support a price adjustment. Strong contingency language defines "material" upfront: "any discrepancy exceeding 10% of stated collections, any undisclosed liability over $10,000, or any missing patient records affecting more than 5% of active patients."

Where buyers lose leverage is assuming they can extend the due diligence period informally. If you're on day 28 of a 30-day window and still waiting for the seller to produce lease documents, you can't unilaterally add another week. The seller has to agree in writing to extend the deadline—and they're not obligated to.

Documenting your findings during due diligence is what supports renegotiation later. If you discover patient attrition that wasn't disclosed, compile the data showing the trend before you approach the seller. If accounts receivable aging reveals that 40% of outstanding balances are over 90 days, calculate the write-off impact and present it as a price adjustment.

The due diligence contingency is also when you verify operational claims. If the seller said the practice runs on a modern cloud-based system but you find a server-based platform that hasn't been updated in five years, that's a red flag—not just for technology costs, but for data migration complexity after closing. If patient records are incomplete or disorganized, that's not just an administrative headache—it's a compliance risk that could affect your ability to bill insurance or defend against malpractice claims. Because the staff and patient base typically remain unaware that the practice is for sale, buyers are expected to complete their due diligence in a confidential manner and visit the practice after business hours.

One protection many buyers overlook is requiring the seller to certify that all records provided are complete and accurate. A representation clause in the APA—"Seller represents that all financial records, patient charts, and operational documents provided during due diligence are true, complete, and not misleading"—gives you recourse if you discover post-closing that the seller withheld information.

The due diligence period is the only time you have unrestricted access to the practice's internal records. Use it to verify everything the seller claimed, document any discrepancies, and decide whether the deal still makes sense at the agreed price. Once the contingency expires, your ability to walk away or renegotiate terms disappears—unless you're willing to forfeit your earnest money.

Financing and Lease Contingencies: The Two That Kill Most Deals

More deals collapse during financing approval and lease assignment than at any other stage. These two contingencies protect you when lenders deny your loan or landlords refuse to transfer the lease—but only if you structure them with clear timelines and defined exit conditions.

A financing contingency lets you walk away if you can't secure a loan on acceptable terms. But it requires demonstrating good-faith effort. Applying to one lender, getting rejected, and terminating the agreement won't hold up if the seller challenges it. Most agreements require you to apply to at least two or three lenders and provide documentation showing you pursued financing diligently.

Where buyers lose protection is failing to define what "suitable financing" actually means. A contingency that says "subject to buyer obtaining financing" doesn't specify acceptable terms. If your lender approves a loan at 9.5% interest when you expected 7%, or requires 30% down instead of 20%, does that qualify as suitable? Stronger language looks like this: "Buyer must secure financing with an interest rate not exceeding 8%, a loan term of at least 10 years, and a down payment not exceeding 25% of purchase price."

Lenders typically take four to eight weeks to issue a commitment letter, though the timeline varies based on practice complexity and how quickly you submit documents. Your financing contingency should account for that. A 30-day window is tight—most buyers need 45–60 days to complete underwriting. If your contingency expires before the lender issues a commitment, you're now obligated to close even if the loan falls through.

Lease contingencies are often harder to satisfy than financing. Landlords can refuse assignment entirely, demand rent increases, or invoke recapture clauses that terminate the lease rather than approve the transfer. When landlords won't assign the lease, the deal dies—unless the seller can negotiate a new lease directly with you, which removes them from liability but often takes months.

Lenders require lease terms that match or exceed loan amortization. If you're financing the purchase with a seven-year loan, the bank typically wants at least a five-year lease with renewal options that extend beyond the loan term. If the seller's current lease expires in three years with no renewals, the landlord will need to negotiate a new lease with you—and that introduces uncertainty. One pattern that kills deals: the landlord agrees to assign the lease but demands a 20% rent increase that breaks your pro forma.

Strong lease contingencies specify what "acceptable" means: maximum rent, minimum lease term, required renewal options, and landlord improvement allowances if applicable. For example: "Buyer must obtain landlord approval for lease assignment on terms substantially similar to Seller's current lease, with base rent not exceeding $X per square foot, a remaining term of at least five years, and at least two five-year renewal options."

Recapture clauses are the hidden risk most buyers don't discover until they request assignment. These provisions allow the landlord to cancel the lease entirely rather than approve the transfer. Reviewing the existing lease early in due diligence is the only way to identify recapture language before you're committed. If it exists, your lease contingency should explicitly state that landlord approval must not trigger recapture.

Landlord approval timelines vary widely. Some respond within two weeks; others take two months. Your lease contingency should account for that delay and specify a deadline for the landlord to respond. A common structure: "Seller will submit lease assignment request to landlord within 10 days of execution. Landlord must approve or deny within 30 days. If landlord denies or fails to respond, Buyer may terminate and recover earnest money."

One protection many buyers overlook is requiring the seller to cover costs if the landlord demands payment for assignment approval. Some landlords charge assignment fees—typically one to three months' rent—or require the buyer to pay for lease documentation and legal review. Clarifying upfront—"Seller will pay all landlord-related fees for lease assignment"—removes that friction.

Financing and lease contingencies work together. If your lender won't approve the loan without a seven-year lease and the landlord will only offer five years, both contingencies are at risk. Coordinating these timelines—submitting your loan application and lease assignment request simultaneously—gives you the best chance of satisfying both before deadlines expire.

These two contingencies are where most deals either close or collapse. Attorneys who specialize in dental practice transactions consistently identify financing and lease approval as the issues that most frequently threaten to kill deals. Structure them with specific terms, realistic timelines, and clear exit conditions—and don't remove them until you have written confirmation that both your lender and your landlord have approved the transaction.

Structuring Contingency Timelines and Removal to Protect Your Deposit

Most buyers assume contingencies run sequentially—complete due diligence, then apply for financing, then negotiate the lease. In practice, they run concurrently. You're auditing financial records while your lender underwrites the loan and the seller submits the lease assignment request to the landlord. That means you're managing three separate timelines simultaneously, each with its own deadline and removal condition.

A typical structure looks like this: 30 days for due diligence, 60 days for financing, 45 days for lease assignment. All three periods start when the purchase agreement is executed, not when the previous contingency is satisfied. If you spend the first 20 days of due diligence waiting for the seller to produce records, you haven't paused the financing or lease clocks—they're still running.

Contingency removal must be done in writing, and it's irreversible. Once you notify the seller that you're satisfied with due diligence or that financing has been approved, you've forfeited that exit option permanently. Many buyers remove contingencies informally—telling the seller "everything looks good" or "the lender is moving forward"—without realizing that verbal assurances don't count. The agreement specifies written notice, and until you deliver it, the contingency technically remains in place.

One pattern that creates problems: buyers remove contingencies to "show good faith" before they've fully verified the condition is satisfied. Your lender gives you verbal approval, so you remove the financing contingency—then underwriting identifies an issue that delays the commitment letter by three weeks. You're now obligated to close even if the loan terms change or the approval is rescinded. The safer approach: don't remove any contingency until you have written confirmation in hand.

If a contingency isn't satisfied by the deadline, you have three options. You can request an extension, but the seller must agree in writing—and they're not obligated to. You can walk away and recover your earnest money, which is the contingency's entire purpose. Or you can waive the contingency and proceed anyway, which some buyers do when they're emotionally committed to the deal and don't want to lose it over a technicality.

Financing approval often takes longer than buyers expect. Lenders request additional documentation, appraisals get delayed, underwriting identifies issues that require explanation. A 60-day financing contingency sounds generous, but if you don't submit your application until day 15 and the lender takes six weeks to issue a commitment, you're left with a narrow window to address any conditions they attach.

Lease negotiations can stall for reasons outside your control. Landlords take weeks to respond, their attorneys request changes to assignment language, they demand rent increases that require you to renegotiate your pro forma. Submitting the lease assignment request early—within the first 10 days of the agreement—gives the landlord maximum time to respond before your deadline hits.

Coordinating contingency timelines with your attorney and lender means setting internal deadlines that are earlier than the contract deadlines. If your due diligence contingency expires on day 30, plan to complete your review by day 25. If financing approval is due on day 60, aim for day 50. That buffer protects you when the seller is slow to produce documents, the lender requests additional information, or the landlord doesn't respond on schedule.

Missing a contingency deadline without formal removal or extension creates ambiguity about whether you've waived your rights. Some agreements specify that failure to remove a contingency by the deadline automatically terminates the deal; others treat silence as implied waiver. The purchase agreement defines the transaction's structure and terms, making it critical to track every deadline, document every extension request, and remove contingencies in writing only after conditions are satisfied to keep your earnest money protected through closing.