Client transfer, consent and non-competes in a practice sale

Two things make a practice sale legally different from selling a store: the client files you are transferring contain personal information you collected under obligations that do not simply end at closing, and the non-compete protecting the buyer has to survive a level of judicial scrutiny that most sellers underestimate. Getting both right is what actually protects the value of the deal.

Client files are not just paperwork

A client file typically contains personal information the client provided to you for a specific purpose, under professional and privacy obligations that continue to apply regardless of who owns the practice. Many regulators impose their own rules on how files can be transferred on a sale — in some professions clients must consent, in others notice is sufficient, and the details differ by profession and by province. Confirm the specific rule with your regulator rather than assuming your situation matches another practice’s experience.

Privacy law runs alongside your regulator’s rules

Separate from professional regulation, Canadian privacy law governs how personal information collected from clients can be used and disclosed, including in a business sale. Generally, information can be used for purposes a client would reasonably expect, and a sale of the business is commonly treated as one of those purposes — but the details, and any notice obligations, depend on the circumstances and the applicable law. Build a privacy review into the sale process rather than treating client files as ordinary business assets.

Why Canadian non-competes are narrower than people expect

Canadian courts, historically and today, read restrictive covenants against the person who drafted them and will strike down one that is broader than necessary to protect a legitimate interest, rather than simply narrowing it to something reasonable. Some provinces have also placed specific limits on non-compete agreements with employees, while generally preserving an exception for covenants tied directly to the sale of a business — which is one reason the covenant in a practice sale needs to be drafted specifically for that transaction, not adapted from an employment agreement.

• Confirm your regulator’s specific rule on client file transfer and consent
• Review privacy obligations for personal information already collected
• Draft the non-compete narrowly, tied specifically to the sale
• Match the non-compete’s duration and geography to the actual client base
• Address non-solicitation of both clients and staff separately

Scope, duration and geography all have to be reasonable

A covenant that bars the seller from practicing anywhere in the province for an open-ended period is far more likely to be struck down than one limited to a defined radius or client list and a fixed, defensible term. Tie the geography to where the practice actually draws clients from, and be prepared to explain why the duration chosen is necessary to protect the buyer’s investment rather than simply punitive.

Non-solicitation is a separate, and often more durable, protection

A non-solicitation clause, which prevents the seller from actively pursuing former clients or staff without barring them from working in the field altogether, is generally viewed more favourably by courts than a broad non-compete because it restricts less activity while still protecting the buyer’s core interest. Many well-drafted practice sale agreements use both together — a reasonable non-compete and a clear non-solicit — rather than relying on one alone.

Document what happens to shared or referral clients

Some clients came to the practice through a referral relationship the seller maintains personally with other professionals — a real estate agent, another advisor, a family contact — rather than through the practice’s own marketing or reputation. Spell out in the purchase agreement whether the seller is expected to maintain and pass along those referral relationships, and for how long, since a referral source that quietly follows the seller to their next venture can represent an ongoing loss of new client flow that a one-time client list transfer will not fix.

Staff non-competes are a separate question from the seller’s

If associates or other staff have their own restrictive covenants with the practice, review whether those agreements survive a change in ownership and whether they were properly drafted to begin with — an employee non-compete is treated differently by courts, and in some provinces by statute, than one tied directly to the sale of a business. A buyer relying on staff covenants to protect the client base after closing should confirm those agreements are actually enforceable, rather than assuming they carry the same weight as the seller’s own commitment.

What happens if a covenant is challenged

When a departing seller breaches a non-compete and the buyer goes to court to enforce it, the outcome turns heavily on how the clause was drafted at the outset — courts assess whether the restriction genuinely protects a legitimate business interest and goes no further than necessary, rather than rewriting an overreaching clause down to something reasonable. A poorly drafted covenant can be found unenforceable in its entirety, leaving the buyer with no protection at all despite having paid for it. This is precisely why the drafting deserves real legal attention rather than being treated as boilerplate at the back of the purchase agreement.