No cost of living rise
There are many pitfalls in owning or leasing property Daphne Robertson highlights some of them in the world of leases
Daphne Robertson highlights some of them in the world of leases
Traditionally, most practices were in former private houses which the GPs owned. But, as time went on, other partners joined the partnership, while the premises continued to be owned by the original partners, who rented them to the practice.
More recently, many practices have opted for purpose-built surgery premises, often with an onsite pharmacy leased from the practice. Others look to expand or redevelop their existing premises to include dentists and physiotherapists and indeed to incorporate residential or office premises above the surgery itself.
Any of these approaches might bring them into contact with the ever-increasing problems of leases.
Practices will want to link the lease rental payments to the PCO rent reimbursement that the practice receives in order to minimise any shortfall.
However, the landlord may want to insist on the lease rentals being set at the market rent.
Because the rent reimbursement takes account of the absence of risk to the landlord, it may be reasonable for the market rent to be lower. If this is the case, make sure the landlord is aware of the fact! Specialist advice may need to be taken.
If a lease term is 15 years in length, you might expect a rent review at the end of 10 years to fix a rent for the remaining five years. But the formula used is often based on a hypothetical new lease, for which the rent is what a willing tenant would pay to a willing landlord.
And if the willing tenant has been able to persuade the landlord to grant him a rent-free period at the commencement of the term, he may be willing to pay a higher rent in return.
So if at the start of your lease you manage to negotiate a rent-free period, make sure you're not letting yourself in for a period of higher rent later on.
Breaches of the lease
What if you are a day or two late taking one of the steps the lease requires? Easily done with all the demands of a busy professional life. And in fact, many leases recognise this in favour of the landlord by providing that 'time shall not be of the essence' for the steps he has to take: in other words he can be a bit late. So make sure time is not of the essence for you too.
Again, the practice may pay to extend the premises as the practice grows. Most leases acknowledge that, on a rent review, it is not reasonable for the tenant to have to pay an increased rent as a result of the improvement. But landlords usually try also to exclude having to pay anything back to the tenant for the improvements at the end of the lease term.
Any well-drawn partnership agreement should also set out how any such improvement grants are valued for incoming and outgoing partners.
What about the length of the lease itself? The trend in recent years has been towards shorter lease terms, which give the tenant greater flexibility while still retaining the right that the law gives him to renew the lease. The perception that a long lease term gives greater security of tenure is not always the right approach.
Right to renew the lease
The words in the lease 'outside the Landlord and Tenant Act 1954', which you had thought were just legalese, remove your automatic right of renewing the lease. So make sure they're not there! If a GP tenant does not have an automatic right to renew the lease, you are much more at the landlord's mercy when trying to negotiate the rent for the new lease.
And finally, what if you wish to move to new premises and terminate the lease before the expiry of the lease term? One way of achieving this is by including a break clause in the lease, say at intervals that tie in with the district valuer's PCO rent assessment.
This is a matter for negotiation but you also need to consider the notice period required to trigger the break.
Not surprisingly landlords will in certain circumstances resist the inclusion of break clauses in the lease and there is much case law on the construction of such clauses and so specialist advice should be taken.
These are just a few examples of where you need to vigilant. We recently advised a practice that approached us for help after entering into a 45-year lease with upward-only market rent reviews, no break clauses and no right to assign the lease to a third party.
Don't be caught out!
Daphne Robertson is the principal of DR Solicitors in London, a specialist law firm advising NHS practices
·Rent reimbursement try to minimise any shortfall between the level of PCO reimbursement and the rent you are paying
·Rent review link to the district valuer's rent assessment
·Breaches of lease ensure that GP tenant breaches are treated in the same/similar way as landlord's breaches
·Improvement grants value them in your partnership agreement
·Lease term lease terms nowadays are generally between seven and 15 years and do remember that stamp duty is payable now on longer commercial leases
·Break clauses link these to the rent review provisions and/or the district valuer's rent assessment if you can