A structured LOI framework built for the unique regulatory, staffing, and operational realities of lower middle market senior care acquisitions — covering everything from licensing contingencies to PropCo/OpCo structures.
A Letter of Intent (LOI) for an assisted living facility acquisition is more complex than a standard small business LOI. Because these transactions involve state-licensed operations, real estate optionality, Medicaid payer mix considerations, and staffing continuity obligations, the LOI must address terms that simply do not exist in other deal types. Buyers need to protect themselves against licensing transfer delays, occupancy deterioration during diligence, and undisclosed citations — while sellers need assurance that the buyer is qualified to receive a state license and capable of closing. This guide walks through each critical section of an assisted living LOI, provides realistic example language, and flags the negotiation leverage points that matter most in these deals. Whether you are acquiring a 16-bed residential care home or a 45-bed memory care facility, getting the LOI right sets the foundation for a clean, closed transaction.
Find Assisted Living Facility Businesses to AcquireParties and Facility Identification
Clearly identifies the buyer entity, seller entity, and the specific licensed facility being acquired, including the facility name, state license number, bed count, and physical address. In assisted living deals, the facility license number should always be referenced because the license — not just the business name — defines what is being transferred.
Example Language
This Letter of Intent is entered into between [Buyer Legal Entity], a [State] [LLC/Corporation] ('Buyer'), and [Seller Legal Entity] ('Seller'), with respect to the proposed acquisition of [Facility Name], a licensed assisted living facility located at [Address], currently operating under State License No. [XXXXXX] with a licensed capacity of [XX] beds ('the Facility'). This LOI covers the acquisition of the operating business, all associated personal property, resident contracts, and care agreements, and [does / does not] include the real property at the above address.
💡 Sellers should confirm that the buyer entity identified in the LOI is the same entity that will apply for the new state license, or that buyer commits to form an appropriate operating entity prior to license application. Buyers should avoid naming a holding company as the acquiring party if it cannot directly hold a facility license in the relevant state.
Purchase Price and Valuation Basis
States the proposed total consideration and explains how the price was derived — typically a multiple of trailing twelve-month (TTM) EBITDA or Seller's Discretionary Earnings (SDE), adjusted for occupancy and payer mix. Assisted living facilities in the lower middle market typically trade at 3.5x–6x SDE depending on occupancy, private-pay concentration, real estate inclusion, and licensing cleanliness.
Example Language
Buyer proposes a total purchase price of $[X,XXX,000] for the Facility, representing approximately [X.Xx] times the Facility's trailing twelve-month Seller's Discretionary Earnings of $[XXX,000] as represented by Seller. Of the total consideration: (i) $[X,XXX,000] shall be paid in cash at closing, funded through a combination of Buyer equity and SBA 7(a) financing; (ii) $[XXX,000] shall be paid in the form of a seller note, bearing interest at [X]% per annum with a [36/60]-month amortization; and (iii) $[XXX,000] shall be contingent on the Facility achieving an average occupancy rate of [XX]% or greater during the [12]-month period immediately following the closing date ('Earnout').
💡 Sellers should push back on earnouts tied to post-close occupancy if occupancy has been stable for 24+ months — that risk has already been demonstrated. Buyers should insist on a purchase price adjustment mechanism tied to occupancy at closing if the LOI is signed more than 60 days before anticipated close, since occupancy can shift materially during due diligence and licensing transfer periods.
Real Estate Structure
Specifies whether the real property is included in the transaction or structured separately as a PropCo/OpCo arrangement. This is one of the most important structural decisions in an assisted living deal because it affects SBA loan sizing, seller tax treatment, and buyer's long-term lease exposure.
Example Language
Option A (Real Estate Included): The purchase price above includes the real property located at [Address], which shall be conveyed by warranty deed at closing, free and clear of all liens except [as noted]. Buyer shall commission a commercial property appraisal and Phase I environmental assessment as part of due diligence. Option B (PropCo/OpCo): The real property shall be retained by Seller or transferred to a separate Seller-controlled entity ('PropCo'). Buyer ('OpCo') shall enter into a triple-net lease for the Facility premises at a market rent of approximately $[X,XXX] per month with an initial term of [10] years and [two 5-year] renewal options. Lease terms shall be finalized and attached as an exhibit to the definitive Asset Purchase Agreement.
💡 SBA 7(a) loans can finance both the operating business and real estate in a single loan if the real estate is included. PropCo/OpCo structures can complicate SBA financing and require separate underwriting. Sellers who retain real estate in a PropCo should understand that the lease rate and terms will be scrutinized heavily by the buyer's lender and will directly affect the facility's DSCR and operating margins.
Due Diligence Period and Access
Defines the length of the due diligence period, the categories of information to be provided, and the access arrangements for the facility. Assisted living due diligence is inherently more complex than typical small business diligence because of the regulatory documentation requirements, and 45–60 days is standard.
Example Language
Buyer shall have [45] calendar days from the execution of this LOI to complete its due diligence investigation of the Facility ('Due Diligence Period'). Seller shall provide Buyer with access to the following within [10] business days of LOI execution: (i) three years of financial statements and tax returns; (ii) current state license and all inspection reports, deficiency notices, and citations for the trailing 36 months; (iii) resident census, payer mix breakdown, and all resident contracts and care agreements; (iv) employee roster including certifications, tenure, and compensation; (v) property lease or deed, most recent ADA and fire safety inspection reports; and (vi) any pending or threatened litigation, grievances, or regulatory complaints. Buyer and its representatives may conduct a walk-through of the Facility at a mutually agreed time with reasonable advance notice and minimal disruption to residents and staff.
💡 Sellers should require that all due diligence visits to the Facility be coordinated through the seller or administrator to protect resident privacy and prevent staff anxiety about a potential sale. HIPAA considerations require that resident-level data shared with buyers be appropriately de-identified or covered by a Business Associate Agreement (BAA) prior to disclosure.
Licensing and Regulatory Contingency
Addresses the requirement for buyer to obtain state regulatory approval for the ownership transfer, which is mandatory in virtually every state for assisted living facility acquisitions. This contingency is unique to healthcare businesses and often drives the longest lead time in the deal.
Example Language
This transaction is contingent upon Buyer receiving approval from the [State] Department of [Health / Social Services / Aging] ('Licensing Authority') for the transfer of the Facility's operating license to Buyer or Buyer's designated operating entity. Buyer agrees to submit a complete license application to the Licensing Authority within [15] business days of LOI execution and to diligently pursue approval thereafter. Seller agrees to cooperate fully with the licensing transfer process, including providing required documentation and participating in any required interviews or inspections. If licensing approval has not been obtained within [120] calendar days of the effective date of this LOI, either party may terminate this LOI without further obligation, unless the parties mutually agree in writing to extend the contingency period.
💡 Buyers should research the specific state's licensing transfer timeline before agreeing to a closing date or financing commitment expiration. Some states issue provisional or interim operating permits that allow a buyer to operate while a full license is processed — this can significantly de-risk the closing timeline. Sellers should not agree to stop marketing the facility until the buyer has submitted a complete license application.
Exclusivity and No-Shop Provision
Grants the buyer an exclusive negotiating period during which the seller agrees not to solicit or accept competing offers. Exclusivity is critical for buyers making significant investment in due diligence and SBA loan processing, but sellers should limit its duration given licensing transfer uncertainty.
Example Language
In consideration of Buyer's commitment to invest time and resources in due diligence and financing, Seller agrees to a period of exclusive negotiation ('Exclusivity Period') of [45] calendar days from the date of this LOI. During the Exclusivity Period, Seller shall not, directly or through any broker or agent, solicit, entertain, or accept any offer for the purchase of the Facility or its assets. The Exclusivity Period may be extended by mutual written agreement of the parties. If Buyer fails to deliver a signed Asset Purchase Agreement within the Exclusivity Period, the no-shop obligation shall expire and Seller shall be free to resume marketing the Facility.
💡 Sellers should resist exclusivity periods longer than 45–60 days unless the buyer has already demonstrated financing readiness, such as an SBA pre-qualification letter or proof of funds. Given that licensing transfer timelines can stretch to 6+ months, locking into a long exclusivity period with an under-qualified buyer creates real business risk if the deal falls apart.
Deposit and Good Faith Earnest Money
Specifies the amount of earnest money the buyer will deposit into escrow upon LOI execution or signing of a definitive agreement, and the conditions under which it is refundable or forfeited.
Example Language
Within [5] business days of the execution of this LOI, Buyer shall deposit $[XX,000] ('Earnest Money Deposit') into an escrow account held by [Escrow Agent]. The Earnest Money Deposit shall be fully refundable to Buyer if (i) Buyer terminates during the Due Diligence Period for any reason, or (ii) the Licensing Authority denies Buyer's license application through no fault of Buyer. The Earnest Money Deposit shall be applied toward the purchase price at closing. If Buyer fails to close for reasons other than a licensing denial or a material breach by Seller, the Earnest Money Deposit shall be forfeited to Seller as liquidated damages.
💡 In assisted living transactions, a higher earnest money deposit ($25,000–$75,000 for a $1M–$3M deal) signals buyer seriousness and is particularly important to sellers who face genuine operational disruption from a failed deal. Buyers should ensure that the licensing denial carve-out is clearly written so that a good-faith application rejected by the state does not result in deposit forfeiture.
Staffing and Resident Continuity Commitments
Outlines buyer's intentions with respect to retaining existing staff and honoring existing resident agreements post-close. While not legally binding at the LOI stage, these commitments materially affect seller willingness to transact and community trust during transition.
Example Language
Buyer intends, but does not guarantee, to offer employment to all current full-time and part-time caregiving staff at the Facility for a minimum of [90] days post-closing at their current compensation levels, subject to standard employment offer terms and background check requirements. Buyer further agrees to honor all existing resident admission agreements and care plans in effect as of the closing date and to provide residents and their families with written transition notification no fewer than [30] days prior to closing, in compliance with applicable state notification requirements. Buyer and Seller shall cooperate on a joint communication plan for residents, families, and staff prior to any public announcement of the transaction.
💡 Sellers should view buyer's staffing and resident continuity commitments as a quality indicator — a buyer who intends to immediately replace staff or restructure resident agreements is a higher-risk counterparty. Buyers should not make legally binding staffing guarantees at the LOI stage, but clear statements of intent are appropriate and expected.
Representations and Warranties Preview
Signals the key representations that seller will be expected to make in the definitive purchase agreement, giving the buyer a framework for what to verify during due diligence and alerting the seller to potential disclosure issues.
Example Language
Seller will be expected to represent and warrant in the definitive Asset Purchase Agreement, among other things, that: (i) the Facility's operating license is current, valid, and in good standing with no open citations, pending investigations, or enforcement actions; (ii) the Facility's financial statements have been prepared in accordance with GAAP or consistent accounting methods and accurately reflect the Facility's operations; (iii) there is no pending or threatened litigation, regulatory action, or family grievance not disclosed to Buyer; (iv) all employees have current required certifications and training as required by state regulations; and (v) there are no known material defects in the Facility's physical structure or fire/life safety systems that have not been disclosed.
💡 Sellers should begin preparing disclosure schedules during the LOI phase rather than waiting for the definitive agreement. Known issues — a single deficiency report, a pending family grievance, a deferred HVAC repair — are far better disclosed proactively than discovered by the buyer's counsel during diligence, where they will be used as price reduction leverage.
Closing Timeline and Conditions
Establishes the anticipated closing date and the key conditions that must be satisfied before the parties are obligated to close, including SBA loan approval, licensing transfer, and satisfactory completion of due diligence.
Example Language
The parties anticipate a closing date of approximately [90–150] calendar days from the execution of this LOI, subject to the satisfaction of the following conditions: (i) execution of a mutually acceptable Asset Purchase Agreement; (ii) Buyer's receipt of SBA 7(a) or conventional financing commitment satisfactory to Buyer; (iii) receipt of state licensing approval for transfer of the Facility's operating license to Buyer; (iv) Buyer's satisfactory completion of all due diligence; and (v) no material adverse change in the Facility's occupancy, staffing, or regulatory status between the date of this LOI and the closing date.
💡 Buyers should build a material adverse change (MAC) clause that specifically references occupancy thresholds — for example, a drop below [75]% occupancy in the 30 days prior to closing should trigger a purchase price renegotiation right. Sellers should insist on a specific outside closing date beyond which either party can walk, to prevent indefinite deal limbo during lengthy licensing transfer processes.
Occupancy-Based Earnout Structure
When trailing occupancy is strong but the seller has not sustained 90%+ occupancy for a full 24-month period, buyers frequently propose earnouts tied to post-close occupancy rates. Sellers should negotiate the measurement period (12 months is standard), the occupancy threshold triggering payment, and protections against buyer actions that artificially depress occupancy — such as restricting admissions or changing pricing — that would reduce the earnout payout.
Licensing Transfer Contingency and Outside Date
The state licensing transfer is the single greatest source of deal uncertainty in assisted living acquisitions. Both parties should agree on a realistic outside date for licensing approval — typically 120–150 days post-LOI — with clear language on what happens if the state takes longer. Sellers should resist indefinite extensions; buyers should negotiate for provisional operating permit rights during the transfer period where state law permits.
Real Estate Valuation and Lease Rate in PropCo/OpCo Structures
When real estate is separated into a PropCo, the lease rate set at closing becomes a permanent operating cost for the buyer and a permanent income stream for the seller. This rate is intensely negotiated. Buyers should ensure the lease rate is supportable by the facility's EBITDA at modeled occupancy and will satisfy SBA lender DSCR requirements. Sellers should obtain an independent appraisal to establish a defensible market-rate baseline.
Seller Financing Terms and Subordination to SBA Loan
Seller notes are common in assisted living deals (10–20% of purchase price) and are frequently required by SBA lenders as a form of seller skin in the game. Sellers should negotiate the interest rate, amortization schedule, and prepayment provisions. Buyers should confirm that the seller note structure is acceptable to their SBA lender, as SBA 7(a) loans require seller notes to be on full standby for 24 months with no payments, which sellers sometimes resist.
Staff Retention and Non-Solicitation Obligations
Sellers and their key staff — particularly any licensed administrator or director of nursing — are critical to continuity. Buyers should negotiate a transition services period where the seller or key staff remain available post-close (typically 30–90 days), and a non-solicitation clause preventing the seller from hiring away caregiving staff for at least 12 months post-close. Sellers should ensure any non-compete obligations are limited in geographic scope to the relevant market area and do not prevent them from working in the broader healthcare field.
Medicaid and Private-Pay Revenue Representation
Payer mix is a core value driver in assisted living. Buyers should require a specific seller representation that the payer mix breakdown provided is accurate and that no Medicaid contracts are under audit, recoupment action, or pending reimbursement rate reduction. Sellers who have a high private-pay concentration should proactively document this as a selling point and ensure it is reflected in the LOI's valuation rationale.
Citation and Inspection History Disclosure
Any state deficiency citation, even a minor one, must be disclosed in the LOI process. Buyers should require a full 36-month inspection history as a due diligence deliverable and include a representation in the LOI that no material citations exist beyond those already disclosed. Sellers should proactively provide this documentation and prepare a written corrective action summary for any past citations to demonstrate that issues were resolved.
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Most provisions of a well-drafted LOI are intentionally non-binding, including the purchase price, deal structure, and closing conditions. However, certain provisions are typically written as binding: the exclusivity or no-shop clause, confidentiality obligations, the earnest money deposit terms, and each party's obligation to negotiate in good faith. In an assisted living acquisition, the licensing contingency clause should also be drafted as a binding term, clearly stating that both parties are obligated to cooperate with the state licensing transfer process.
Most assisted living LOIs provide for a 45–60 day due diligence period, which is longer than many other small business acquisitions because of the volume of regulatory documentation involved. Buyers need time to review up to 36 months of state inspection reports, verify all staff certifications, analyze the resident census and payer mix, and assess the physical facility for code compliance. If the facility is large (40+ beds), has a complex payer mix, or has any open regulatory issues, 60–75 days is more realistic.
This is one of the most common deal complications in assisted living acquisitions. The LOI should specify an outside date — typically 120–150 days from execution — by which licensing approval must be received, with an automatic extension option by mutual consent. If the state misses the outside date, either party should have the right to terminate without penalty. Buyers should research whether their state issues provisional or interim operating permits, which allow operations to begin under the buyer while the full license is processed, significantly reducing closing timeline risk.
Yes, absolutely. Owned real estate in an assisted living deal creates significant structural complexity that must be addressed at the LOI stage. The parties need to decide whether the real estate is included in the purchase price, separated into a PropCo/OpCo structure, or sold independently. This decision affects SBA loan structuring, the applicable valuation multiple for the operating business, and the seller's tax treatment. Leaving real estate structure undefined in the LOI and deferring it to the definitive agreement is a common mistake that causes deals to collapse weeks before closing.
For a lower middle market assisted living facility priced between $1M and $4M, an earnest money deposit of $25,000 to $75,000 is typical, representing roughly 2–3% of the purchase price. The deposit should be held in a neutral escrow account and fully refundable if the buyer terminates during the due diligence period or if the state denies the buyer's license application through no fault of the buyer. A higher deposit signals buyer seriousness and is particularly valued by sellers who face genuine operational disruption — staff anxiety, resident family concerns — from entering a formal sale process.
Yes, assisted living facilities are SBA-eligible businesses, and SBA 7(a) loans are the most common financing vehicle for lower middle market acquisitions in this sector. SBA loans can finance the purchase of the operating business, goodwill, working capital, and real estate in a single loan. The typical SBA 7(a) structure for an assisted living acquisition involves 10% buyer equity, 80% SBA loan, and 10% seller note on full standby for 24 months. Buyers should obtain an SBA pre-qualification letter before signing an LOI, and the LOI should include a financing contingency tied to SBA loan commitment.
Sellers should proactively provide a summary of the facility's regulatory standing at the LOI stage, including the current license status, any citations or deficiency reports issued in the trailing 36 months, and any pending investigations or enforcement actions. Withholding known regulatory issues until formal due diligence is a negotiating mistake — when buyers discover them through state public records searches (which they will), it damages trust and is used as justification for price reductions. Sellers who have received and resolved past citations should prepare a written corrective action summary demonstrating that the issues were remediated to the state's satisfaction.
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