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.

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?).