Buying a pharmacy is one of the biggest decisions in a pharmacist’s career – but it’s also one of the easiest ways to make expensive mistakes. On the surface, everything can look solid – good script numbers, loyal customers, stable staff. Yet behind the numbers are legal details that can quietly undo even the best business.
Here are five of the ‘traps’ we see most often in pharmacy transactions – and how to avoid them.
1. Lease Limitations and Landlord Roadblocks
The premises lease is arguably the most important document in the entire purchase. Without a secure lease, you don’t have a business.
The biggest issues arise when the lease term is too short, lacks renewal options, contains demolition or relocation clauses or is simply lacking in important details. Buyers also often assume the lease can simply be “transferred” – but the process of transferring a lease can take time and involves additional costs. Among other things, the landlord will likely request evidence that the buyer is a suitable person with the financial capacity and business skills to perform the lease obligations and operate the pharmacy from the premises. To ensure there are no delays to the transfer process,
Tips:
- The lease should be reviewed early in the process, not just before settlement. Ask your lawyer to confirm assignment rights, expiry dates, and whether there are any “make good” or rent review clauses that could bite later. Also have your lawyer check key details to ensure there are no potential hurdles to your regulatory approval applications;
- You should ensure you have prepared all necessary financial information and professional references well in advance of the landlord requesting that information.
2. PBS Approval and Licensing Delays
An approved pharmacy can’t legally trade until the PBS approval and other licences required by your State are obtained. Buyers sometimes underestimate how long this takes or assume approval will automatically align with settlement. That is rarely the case!
If the regulatory approvals are not obtained in time, settlement may need to be delayed – which can create cash flow and contractual headaches for both sides.
Tip: Your lawyer should endeavour to lodge your regulatory approval applications as early as possible in the transaction. You should also ensure you build in flexibility in the contract for (the likely inevitable) delays, rather than locking in a fixed date that might not be achievable.
3. Staff Entitlements and Employment Risks
In most pharmacy sales, employees transfer with the business. That means the buyer inherits not just the staff – but their accrued entitlements as well.
Problems arise when those entitlements haven’t been properly recorded or paid by the seller. If leave balances or award rates aren’t up to date, the buyer can be liable after settlement.
Tip: As part of due diligence, ask for a full staff schedule showing classifications, rates, and entitlements. Don’t just rely on the payroll summary have your accountant or lawyer check compliance with the Pharmacy Industry Award.
4. Undisclosed Third-Party Agreements
Pharmacies often have agreements with suppliers, service providers, or co-located businesses (like doctors or pathology). Some of these contracts can carry ongoing financial or legal obligations that don’t appear in the financial statements.
Tip: Ask specifically for all third-party agreements – not just the major ones. Check for exclusivity clauses, minimum purchase commitments, or revenue-sharing arrangements. Even small agreements can impact future profitability or restrict how you operate.
5. Buying the Wrong Structure
One of the most common – and costly – errors is buying in the wrong structure. Pharmacists often focus on the price and overlook whether they’re purchasing the business assets, the company shares or a partnership interest. Each comes with very different tax, liability, and control implications.
For example, buying company shares means you inherit all past liabilities of that company, even those you don’t know about. An asset purchase, on the other hand, allows a clean start but may require new supplier accounts and registrations.
Tip: Before signing, talk to your lawyer and accountant about the best ownership structure for your circumstances. Changing it later can be difficult and expensive. You should also ensure the ownership structure meets the pharmacy ownership legislation requirements at both State and Federal levels.
Final Thoughts
Buying a pharmacy is as much a legal process as it is a financial one. While brokers and accountants play vital roles, only a lawyer experienced in pharmacy transactions can identify and manage these specific risks. By addressing these legal traps early, buyers can ensure a smoother transition and protect their investment
The best deals are those where the buyer looks beyond the numbers – and pays close attention to the fine print.
This article is intended to be for general information only. It does not constitute legal advice nor does it establish a relationship of client and lawyer. Specific circumstances or changes in law may vary the accuracy or applicability of the information published. We recommend seeking specific legal advice particular to your circumstances before taking any action, or refraining from taking any action, on any issue dealt with in this article.