The buyer agreed to purchase the nursing home for $28 million. The deal did not close, and the seller blamed the buyer.
M&A Stories
July 10, 2023
Introduction:
Closing a deal becomes less likely as the transaction becomes more complex.
Background:
This case involves the sale of a nursing home by the seller, who operates a skilled nursing facility in Maryland. The nursing home is part of a larger property that includes an assisted living facility and adult daycare, which were not part of the sale. The seller and buyer agreed on a purchase price of $28 million in a letter of intent dated May 6, 2022.
After four months of negotiations, the buyer and seller entered into an Asset Purchase Agreement (APA) with a closing date set for February 1, 2023. The APA required the buyer to identify any service contracts it wanted to assume by October 12, 2022. Additionally, the seller needed to obtain approval for a condominium regime, which the buyer would operate, and finalize the related documents before closing.
The seller provided draft Condominium Agreements to the buyer in October 2022, but due to the buyer’s delays in providing feedback, the seller couldn’t obtain approval for the condominium regime. Furthermore, the buyer failed to timely identify the service contracts it wished to assume and informed the seller that it couldn’t fund the purchase price. On January 11, 2023, the seller asked the buyer to confirm in writing its ability to fund the purchase and close on time, but the buyer did not respond.
Believing that the buyer had definitively repudiated its obligations under the APA, the seller terminated the agreement on January 24, 2023. However, the parties later engaged in negotiations to reinstate and amend the APA. On February 10, 2023, the seller accepted the buyer’s offer to reinstate the APA with amended terms outlined in their emails. But the buyer refused to sign the prepared APA and continued to request additional terms.
Lawsuit:
The seller initiated legal action in a Maryland federal district court, seeking an order to release the buyer’s escrowed deposit of $1,350,000.
Outcome:
The seller claimed that the buyer anticipatorily breached the APA by stating it couldn’t fund the purchase price or close on time. The buyer attempted to have this claim dismissed, but the court denied their motion. The court agreed with the seller that if the buyer indeed expressed its inability to fund the purchase or close on time, it would constitute an anticipatory breach.
The buyer argued against the existence of anticipatory repudiation, stating that it remained willing to negotiate and work through the issues to ensure the transaction was closed. However, the court explained that this statement didn’t negate the possibility of the buyer having repudiated the previous agreement, suggesting the buyer’s willingness to negotiate a new agreement.
The buyer also requested the court to reject the seller’s attempt to add factual allegations supporting an additional claim of the buyer breaching the implied duty of good faith and fair dealing. The claim related to the buyer’s failure to cooperate in preparing the condominium documents and to communicate its desired service contracts assumption. The court allowed the seller to add this claim to their complaint.
Case Reference:
See Family Of Care Real Estate Holding Co., Inc. v. Chapman Property, LLC Civil Action No. DKC 23-0574, United States District Court, D. Maryland (June 22, 2023).
Comment: In hindsight, the buyer’s funding issues seemed to be the underlying cause of their inability to cooperate with the seller in finalizing the condominium arrangement and contract assumption tasks.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
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