Our client developed a health condition about 10 years ago.
Prudently, she engaged us for an appraisal a few years back, and the initial plan was to sell her optometry practice to a family member and/or one of the senior associates.
Then her condition worsened rapidly, and she passed away before we had time to implement the full strategy.
After a respectable time had passed, for all concerned, the family member and the senior associate were reluctant to commit to the takeover. This surprised the widower because that was the intention they shared previously.
Unprepared for this disappointment, we had to re-evaluate the options as considerable time had now passed and the regulator was in the waiting with their guidelines governing the period that an estate can operate a practice.
Conclusion: It was time to go to the wide-open market and seek an arm’s-length buyer.
Anybody looking at the practice had serious concerns about why a family member, or a very senior and productive associate would not commit to the office, but we managed to get through all those accidental stigmas and eventually found a purchaser who was ready to proceed.
The Next Hurdle
Our client had started the process of incorporation and the required Section 85 Rollover, but that was not completed before she passed.
NOTE: A Section 85 rollover is a provision in the Canadian Income Tax Act that allows the transfer assets (like your optometry practice) into a corporation without immediately triggering a big tax bill on the increased value of the assets.
We had to do a lot of investigative research to see if it was legal for the estate to complete the transfer of an optometry practice to a fully formed corporation where the sole and only shareholder is deceased.
I cannot tell you how many consultations we had with accountants, lawyers, the College, and tax & legal experts in this regard.
A definite learning journey for myself and the others involved.
It was established that it was possible, with the sole purpose of allowing the estate to sell the optometry practice as qualifying shares and thus claiming the lifetime capital gains exemption that my dearly departed client was unable to realize.
And Then, Another Hurdle
The building had been sacrificed to a substantial development, and the arrangement that the planning department made with the developer was that in order to assemble a number of very expensive properties in the downtown core, this particular building would be part of the parcel but was to be sacrificed and become greenspace, therefore, it had to be demolished.
This was known many years in advance, so all the leases in the building contained the kiss of death – excuse me and pardon the tragic pun – which is the demolition clause.
So, who would want to buy a practice with the stigma of disinterested family members and associates and a landlord unwilling to give you more than a two-year term with the black cloud (a looming guillotine) in the form of a demolition clause with no clear end date?
Not me!
And to make matters worse, the property is managed by the City, and their approval process requires the navigation skills of a ship’s captain in a hurricane!
Honestly, you cannot even fathom the absurdity of the bureaucracy!
I would say this is the most complicated and convoluted file I have ever worked on, and I am very pleased to report that the estate has been paid in full by the purchaser, and the purchaser does have a nearby location, and their intention is to move the practice quite soon.
All the staff will keep their jobs.
All the associates will stay gainfully engaged.
And all the patients will be looked after.
It is a happy-ever-after ending, but not without a dramatic unfolding of circumstances and situations that I have never seen in my career.
What is your takeaway?
Check your corporate documents and make sure your corporation is in order right now.
Is your spouse or children a shareholder(s)? Are you sure about that?
Have a look at your will and make sure everything is in order. Make sure your will is executed and signed with copies kept with your trusted advisors.
And if you have a premises lease, have a good look at that right now.
If you do not want to do it, Realty Lease Consultants will do it for you. 1-877-216-1013
JACKIE JOACHIM
Jackie has 30 years of experience in the industry as a former banker and now the Chief Operating Officer of ROI Corporation. Please contact her at Jackie.joachim@roicorp.com or 1-844-764-2020.
