Due diligence on a retirement residence

A retirement residence’s financial statements can look solid while hiding the two things that actually determine whether the deal holds together: whether the occupancy behind those numbers is real and sustainable, and whether the residence’s standing with its regulator is as clean as the seller says. Due diligence on a retirement residence needs to test both directly, alongside the more ordinary work of confirming what contracts and relationships actually transfer.

Verify occupancy against real records, not the marketing package

Ask for occupancy tracked against actual move-in and move-out records and current resident agreements, not a summary figure or a brochure statistic, and check whether any of that occupancy depends on rate concessions that would not survive a return to normal pricing. Break occupancy down by suite type — independent living, assisted living, memory care — since a strong blended number can mask weakness in one category that a buyer needs to know about before pricing the deal.

Confirm licence standing and compliance history directly with the regulator

Contact the applicable retirement-home regulator directly to confirm the licence is in good standing, with no unresolved complaint, compliance order or condition attached, rather than relying on the seller’s representation — in Ontario this runs through the Retirement Homes Regulatory Authority, and other provinces run their own, differently structured processes. At the same time, confirm the realistic timeline and requirements for your own operator-approval application, since the regulator’s review of you as the incoming operator is itself a condition that has to clear before closing. Ask for the full inspection history, not just a statement that the file is currently clean, since a pattern of repeated minor findings can be as telling as a single serious one.

Recast the numbers against the underlying records, not the summary

The seller’s financial statements will show a single revenue line where the buyer needs two: confirm that care-package revenue is booked and reported separately from base rent, rather than blended together in a way that makes the services layer impossible to evaluate on its own. Where the residence maintains a capital reserve fund or has commissioned a building-condition or reserve-fund study, request it directly rather than accepting the seller’s description of the building’s condition, since this is usually the most reliable independent record of what capital spending is actually coming due. Verify staffing costs against actual payroll records rather than a budgeted figure, particularly where contracted care or hospitality staffing is used, since a gap between budgeted and actual staffing spend often signals the coverage shortfalls that later show up as an inability to accept higher-acuity residents.

Test what actually transfers

Resident tenancy and occupancy agreements are generally protected and continue regardless of ownership, so this is one area that rarely needs active negotiation. Staff employment, and care and hospitality service contracts — food service, housekeeping — need individual review to confirm which continue automatically and which require consent or renegotiation. Where the real property is owned rather than leased by the operating business, review title, condition and any capital obligations on the real estate separately from the operating-company financials, since the two carry different risks and are sometimes structured as a split transaction. Where the residence is leased rather than owned, review the lease’s remaining term and any assignment or landlord-consent requirements with the same care you would give the licence itself.

Resident records and privacy

Confirm how resident personal and health information is currently handled, stored and secured, and what consent framework applies to transferring or continuing to use those records under new ownership — privacy obligations for this kind of personal information are taken seriously by provincial regulators, and a records-management gap discovered after closing is a genuinely expensive problem to fix.

Staffing model and labour exposure

Review whether the residence relies on in-house staff or contracted care and hospitality providers, and ask specifically whether staffing shortages have limited the residence’s ability to accept higher-acuity residents — a limitation that caps near-term revenue and is not always visible from the financial statements alone. Confirm employment continuity obligations for staff who transfer with the business, which are set provincially and apply regardless of how the deal is structured. Where care staff hold their own professional registrations, confirm those are current as well, since a gap here compounds the operational risk of a staffing shortage rather than standing apart from it.

Findings that actually kill these deals

• The regulator does not approve the incoming operator, or attaches new conditions that change the deal economics
• A compliance order or inspection finding surfaces that was not disclosed before the purchase agreement was signed
• Occupancy turns out to be propped up by rate concessions that collapse under normalized pricing
• A care-staffing shortage limits the residence to lower-acuity residents than the financials assumed