Licensing and Change of Ownership When Buying Assisted Living or Memory Care
Assisted living and memory care communities generally operate under state licenses or certifications, and in many places those approvals cannot simply be handed from one owner to the next. When a community is sold, the process of addressing licensing, often referred to as a senior living change of ownership, can affect the deal’s structure, timing, financing and the continuity of care residents receive. Buyers who understand these considerations early are better prepared for closing.
This article focuses on community-scale assisted living and memory care, including mixed communities with independent living. Small residential care homes, skilled nursing facilities and entrance-fee continuing care communities are outside its scope. It is not legal or regulatory advice. Requirements vary by state and facility type and can change, so buyers should work with qualified legal and healthcare-regulatory professionals.
Licensing Differs by State and Facility Type
States regulate assisted living and memory care in different ways. Licensing categories, required personnel, physical plant standards and specialized requirements for memory care differ from one state to another. Independent living may be regulated differently, or not licensed as a care setting at all, depending on the services provided. Buyers should not assume rules in one state apply in another.
What a Change of Ownership May Involve
Depending on the state, the facility type and how the transaction is structured, a sale may require:
- Advance notice to the licensing agency
- A change-of-ownership application, or an application for a new license by the buyer
- Review of the new owners, operators or administrators, which may include background checks
- Designation of a qualified administrator or other required personnel
- Inspection or review of the community
Licenses should not be assumed to transfer automatically. Where approval is required, it depends on the facts and applicable rules and is never guaranteed. The time involved varies, so agreements and financing should account for that uncertainty.
Program Participation
Some communities participate in state-administered or other programs for eligible residents. Participation may have its own change-of-ownership requirements and does not necessarily carry over to a new owner. Our article on senior housing occupancy, care levels and payer mix discusses how payment sources affect a transaction.
How Deal Structure Interacts With Licensing
In an asset purchase, the buyer’s entity typically acquires the community’s assets and may need its own license. In an entity purchase, the license may stay with the existing company, but some states treat a change in ownership of the licensed entity as requiring notice or approval. Some transactions separate ownership of the real estate from the operating company, which may affect who must be licensed. Neither approach should be assumed to avoid regulatory review, and structure decisions should be made with legal and tax advisors.
Management and Licensing
If a third-party manager will operate the community, regulators may review that arrangement, and the identity of the licensed operator may matter. See our article on senior housing third-party management.
Regulatory History in Diligence
Inspection reports, findings, plans of correction, complaints and enforcement actions can affect both risk and the change-of-ownership process. Our senior housing due diligence checklist covers what to review.
Building Approvals Into the Transaction
- Learn applicable requirements before signing a letter of intent
- Make required approvals conditions to closing
- Secure the seller’s cooperation with applications and transition
- Plan who will serve as administrator and how staff will transition
- Coordinate timing with financing
How Lenders View Licensing
Lenders want confidence that the community can keep operating after closing and may coordinate funding with required approvals. See our guide to senior housing loan requirements.
Internal Transitions
Licensing considerations also apply when ownership changes among partners or family members. See our guide to senior housing succession planning, and for the full acquisition process, our guide on how to buy a senior living community.
US Professional Funding helps buyers finance acquisitions of existing senior living communities and can help plan financing around a transaction’s licensing conditions.
