Understanding Restrictive Covenants When Selling Your Dental Practice

What Happens After You Sell?

When selling your dental practice, you’re not just transferring equipment, charts, and lease rights—you’re also selling your goodwill: the patient loyalty, brand reputation, and trust you’ve built over time.

That goodwill is one of the most valuable assets in the sale—and it’s why restrictive covenants are a standard part of most dental practice transactions.

In this post, we’ll break down what restrictive covenants are, why they’re essential to protecting the buyer’s investment, and what sellers need to consider before signing.

What Is a Restrictive Covenant?

A restrictive covenant is a legal agreement that limits a seller’s ability to compete with the practice after the sale. In dental transactions, this typically includes:

• A non-compete clause (restricts practicing within a geographic radius)

• A non-solicitation clause (prevents the seller from recruiting patients or staff)

These provisions are intended to preserve the value of the practice by ensuring patients and staff remain loyal to the new owner.

Why Restrictive Covenants Protect Goodwill

In most dental practice sales, goodwill makes up the majority of the purchase price. Goodwill includes:

• The seller’s reputation and patient relationships

• Long-term recall systems and preventive care schedules

• Referrals and local professional credibility

If a seller opens a new office nearby or takes patients to another practice, the buyer’s investment is immediately undermined.

Restrictive covenants provide legal protection to ensure that goodwill stays with the practice—not the seller.

What’s Typical in Dental Practice Sales?

These terms can vary based on practice location and local competition. Urban practices may use a smaller radius (e.g., 3 miles), while rural ones may require 15 miles or more.

Key Points Sellers Should Be Aware Of

Know What You’re Agreeing To

Don’t assume the non-compete is “standard.” Review:

• The geographic scope: Does it reflect realistic patient draw?

• The duration: Is it longer than your transition period or consulting agreement?

• The definition of “practice”: Does it restrict teaching, consulting, or part-time work?

Clarify Post-Sale Roles

If you plan to:

• Continue working part-time

• Teach at a dental school

• Join a spouse’s or child’s practice elsewhere

  … be sure these activities are clearly permitted and carved out from the covenant.

Understand Enforcement

Restrictive covenants are enforceable in most states if they are reasonable in scope and duration. Courts typically uphold them if they are:

• Clearly written

• Narrowly tailored to protect legitimate business interests

• Consistent with state laws and public policy

Tip: Your attorney should review the covenant to ensure it’s both fair and enforceable.

Restrictive Covenants Are a Sign of a Serious Deal

Some sellers feel uneasy about signing a non-compete—but it’s important to understand that buyers (and lenders) expect these protections to be in place.

In fact:

• Many lenders require restrictive covenants to fund the loan.

• Buyers will walk away from deals that don’t protect their investment.

• Well-structured covenants make the deal stronger, not riskier.

Protect the Deal—And Your Legacy

A restrictive covenant isn’t just a legal formality—it’s a vital tool that protects the value you’ve worked so hard to build. When structured fairly, it allows you to step away from practice ownership with confidence while giving the buyer peace of mind.

At American Practice Consultants, we help sellers understand every part of the deal—not just the numbers. That includes structuring restrictive covenants that are reasonable, enforceable, and aligned with your personal goals after the sale.

Thinking About Selling? We Can Help.

Let’s start the conversation. We’ll walk you through the selling process, help evaluate your practice, and ensure your transition agreement—including any restrictive covenants—works for both parties.

📞 Contact us today for a confidential consultation.