Senior Care Letter of Intent: Terms to Resolve

What exactly is the buyer proposing to acquire?

Identify the legal seller, buyer, operating entities, locations and the interest being acquired. Distinguish assets from equity and identify any property company. If a new buyer entity will be formed, explain who stands behind the offer and what further organizational details are needed.

An offer for a home care agency may concern an operating company with leased premises. A facility transaction may involve operating assets, real estate, equipment, resident agreements and separate licenses. Avoid a short description such as “the entire business” when the parties disagree about cash, debt, receivables, property or prepaid expenses.

The SBA's acquisition guidance encourages examination of the business and relevant documents with professional advisers. In senior care, that examination should begin with the legal and licensed perimeter of the deal. (Source: SBA, buying an existing business, retrieved 2026)

Which commercial terms belong in the discussion?

A clear offer does not need to settle every final contract clause. It does need to expose material disagreements early enough to avoid spending diligence money on incompatible assumptions.

How should the offer describe the earnings basis?

Identify the reporting period and the earnings definition used to formulate price. Seller's discretionary earnings, EBITDA, EBITDAR and property net operating income are different measures. State whether owner replacement compensation, market rent, temporary staffing and recurring maintenance have been considered.

An annualized recent month is not the same as a completed annual period. If pricing assumes an occupancy improvement or new contract, label that assumption and ask what evidence supports it. Decide whether the buyer is paying for demonstrated performance, taking the upside risk, or proposing contingent consideration.

Avoid a formula that encourages unsafe staffing reductions or inappropriate admissions. A business metric must be interpreted alongside service obligations and the professional judgment of the licensed operating team. A price mechanism should not put clinical decisions under the control of an earn-out target.

How do licensing and payer conditions affect the LOI?

List the approvals and enrollment steps that require verification, including state licenses, Medicare and Medicaid enrollment, relevant managed-care agreements and any facility planning requirements. Assign counsel to determine which changes the proposed structure triggers.

Medicare provider-agreement assignment under 42 CFR 489.18 can carry terms and obligations. The home health and hospice majority-ownership rule in 42 CFR 424.550 is a separate analysis. Neither question is resolved by writing “asset purchase” or “stock purchase” at the top of the LOI. (Sources: 42 CFR 489.18; 42 CFR 424.550, 2026)

The CMS home health and hospice enrollment moratorium announced effective May 13, 2026 adds a current timing and eligibility issue for affected transactions. Determine whether the proposed action is restricted or exempt using the current CMS materials and transaction facts; do not assume that buying an existing provider avoids it. (Source: CMS enrollment moratoria, 2026)

What should a financing condition address?

Differentiate a lender conversation, preliminary indication, credit approval and satisfaction of conditions to funding. Identify the proposed funding sources and the buyer's evidence of available equity. Consider operating liquidity, acquisition expenses, property work and deposits in addition to the seller's price.

Ask the lender how the proposed seller note, working-capital adjustment, property arrangement and licensing timeline affect the application. Do not commit the seller to note terms the senior lender will not accept. A lender's program eligibility review is separate from its assessment of the buyer and business.

Agree on the buyer's application milestones and how the seller will supply records. If financing fails, the parties should understand the consequences, deadlines and expense obligations from the actual document, not an informal promise of flexibility.

How should working capital be handled before detailed diligence?

At the LOI stage, define the intended approach and the unresolved work. If normal operating working capital is included in price, identify the categories that will be measured and the accounting principles that govern the peg and closing calculation.

If receivables stay with the seller, show how the buyer will fund payroll and other expenses while new collections develop. If the buyer acquires receivables, distinguish face value from collectible value and address later adjustments. Resident deposits, advance service payments and unpaid wages may need separate treatment.

An illustrative disagreement is an agency seller expecting to retain every pre-closing invoice while a buyer expects those invoices to fund the first payroll. The difference may not appear in the headline price, yet it can stop the transaction. A clear preliminary treatment prevents that misunderstanding from surviving into final documentation.

What access should the buyer receive during diligence?

Identify the main diligence workstreams and the evidence needed for each: financial, regulatory, quality, staffing, contracts, property, technology and insurance. Give the seller a practical request list and a controlled way to answer questions.

Do not use a diligence provision to demand unrestricted patient, resident or employee access. Define who may review sensitive information and when expert review is justified. Applicable minimum-necessary rules and other privacy obligations require their own analysis. (Source: HHS minimum necessary guidance)

Visits and interviews should be scheduled to protect care delivery and confidentiality. Agree on who authorizes contact with staff, referral sources, payers, landlords and residents. Any mandatory notices take precedence over the commercial preference for secrecy.

How can exclusivity remain accountable?

Exclusivity asks a seller to limit other negotiations while the buyer investigates the business. Its duration, scope, start date, extension and termination should be clear. Have counsel explain the consequences of breach and any related expense provisions.

Use milestones that demonstrate progress: delivery of the initial data room, lender submission, regulatory issue review and the first purchase-agreement draft. A calendar date alone provides little information about whether the buyer is advancing the transaction.

When evidence arrives late or an approval issue changes the timeline, document the revised expectations. Avoid informal extensions that leave either party unsure whether exclusivity has ended. Keep substantive commercial changes in the controlled deal record.

What should the LOI say about transition support?

Outline the seller's proposed training and availability, especially if the owner schedules caregivers, manages referrals, handles billing or maintains the landlord relationship. The scope should identify tasks rather than a vague promise to help as needed.

An owner transition cannot substitute for required professional staffing or management qualifications. Determine who will perform each regulated role and under whose authority the business operates at every stage. If interim management is contemplated, obtain transaction-specific legal and payer review before relying on it.

Include communications planning as a workstream. Staff, referral sources and residents or families need clear information at the appropriate time, subject to notice rules. The buyer should understand the seller's confidentiality concerns without making promises that conflict with required disclosure.

Why should tax allocation be raised before the final agreement?

For an applicable asset acquisition, the buyer and seller may have Form 8594 reporting obligations and a residual-method allocation. The LOI can identify the need for a supported allocation process without pretending the entire purchase price is already classified. (Source: IRS Form 8594 instructions, revision 2021)

The CPAs should evaluate the actual assets, liabilities and consideration. Do not assign arbitrary value to a healthcare license to reach a desired tax outcome. A tax classification does not establish whether the buyer can acquire, replace or use the underlying operating permission.

What should happen before either party signs?

Read the document against a simple issue list: purchased interests, included property, earnings basis, cash requirements, key approvals, liability assumptions, access rules, binding provisions and deadlines. Every material unresolved point should be visible to both parties.

The broker helps organize the commercial discussion; healthcare counsel drafts or reviews the legal terms, the CPA assesses financial and tax issues, and the lender confirms financing requirements. That division of work gives the LOI a useful purpose: a shared basis for investigating a specific business without mistaking early agreement for a completed acquisition.

Terms to use in your review

Use the definition of a working-capital peg to distinguish the negotiated adjustment from the buyer’s operating cash budget.