How to buy or sell a childcare center in California with no interruption to childcare services

Childcare licenses cannot be transferred. When a childcare business is sold, the buyer must obtain their own childcare license. A common question I get is how this can be done without having to close the facility for some period of time (and risk losing customers).

The purchase/sale of a childcare center can best be accomplished by following the steps step forth in Health & Safety Code 1597.14 and Title 22 section 101167. By following the Health & Safety Code’s procedure, the buyer is able to take over operations more quickly and get licensed more quickly than if the steps are not followed. Importantly, the buyer should be able to take over day-to-day operations with no interruption to childcare services.

1. Buyer makes a “bona fide offer” to purchase the business (this would be a written proposal to purchase the business, with a cash deposit, both provided to the buyer).
   • This offer can include whatever conditions precedent / due diligence / contingencies the parties agree to. 
2. The current owner/licensee provides written notice to CCLD and to all enrolled families basically saying that they have received a “bona fide offer” for the business, and they intend to consummate the sale of the business at least 30 days (or more) from the date of the notice.
3. If applicable, the current owner/licensee must notify new enrolling families of the upcoming transfer in ownership.
4. The current owner/licensee also provides buyer with a written notice saying buyer is required to obtain a license if intended to continue operating a child care center.
   • The seller sends a copy of this notice to CCLD.
5. The current owner provides a written “acceptance” of the bona fide offer.
6. Within 5 days of the owner accepting the offer, buyer will submit the application packet to CCLD for the new license.
   • This application can include a cover letter explaining that the parties have complied with Health & Safety Code 1597.14, therefore:
     • CCLD is supposed to give the application priority and provide a written decision within 60 days.
7. If the seller and buyer want the buyer to take over day-to-day operations as quickly as possible (and even before their license application is decided), the buyer should submit a letter to the Regional Office requesting an Emergency Authorization to Operate, to go into effect as soon as allowed under the Health and Safety Code and Title 22.
8. This part is a bit less clear, but depending on the terms of the purchase/sale agreement, buyer could reach a point where 30 days have passed since notice was given of the intended sale, but CCLD has not yet decided on the license application.
   • If this happens, buyer SHOULD be able to consummate the purchase/sale transaction (purchase of whatever assets and property, change over of the lease, even change over of employees to your corporation).
     • If the buyer requested an Emergency Authorization to Operate, the Health & Safety Code says the request must be granted if the buyer and seller have done all of the above.
     • As a practical matter, CCLD often doesn’t know what it’s doing and individuals hesitate to do anything decisive, so the best course of action would be to communicate with the LPA at the start about the process of obtaining the EAO after the 30 day mark has passed.
9. At this point, with the EAO, buyer SHOULD be in a position of operating the child care center fully, with only the formality of the new license outstanding. 

The primary protection of the section is the language that says, “If the parties involved in the transfer of the property and business fully comply with this section, then the transfer may be completed and the buyer shall not be considered to be operating an unlicensed facility while the department makes a final determination on the application for licensure.”  Basically, when the parties follow this section, then the buyer cannot be cited for operating unlicensed care.  (In my reading, this means even the EAO is not necessary.)

Timing is everything, so it is important for the buyer and seller to understand the procedures and steps before entering into a purchase/sale agreement. It is also important to have experienced counsel guiding both sides to negotiate the contract. Even if the parties are friendly and aligned, it’s important to have the contract address a number of issues first-time sellers/buyers may not even think to discuss (e.g., What happens to the funds in the business bank account? What happens if licensing wants to decrease the capacity for the buyer? Who is responsible for taking over or paying out accrued PTO to staff who stay?).