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Rent reviews often perplex GPs who lease their premises. Solicitor Daphne Robertson demystifies the process

If your surgery lease exceeds five years in length, the chances are that it will have a rent review clauses in it.

As a rule the review will be conducted by surveyors, one for the landlord and one for the tenant.

If they cannot agree, they usually consult a third surveyor to act as an expert or arbitrator to make the award.

The rent review clauses normally have two basic features:

‘Upwards only' is the common term used to mean that the rent cannot go down upon review. But the term can be misleading because the rent can stay the same after the review. In March this year the Government issued a statement indicating that it has not ruled out legislation to discourage upwards-only rent reviews.

‘Open market rent' or ‘best rent' are two terms that mean the new rent is to be the market rent.

This is because the surveyor will look at the comparable rents of similar surgery premises in the area, making suitable adjustments where necessary if there are no exact comparisons.

Assumptions and disregards

Modern rent review clauses contain two intriguing terms – ‘the assumptions' and ‘the disregards' – and it is important that GPs understand these. The use of assumptions and disregards is a method that has been adopted by landlords' and tenants' solicitors in modern leases.

Assumptions and disregards are designed to avoid certain arguments that can be raised on the rent review date to adversely affect the value of the lease and therefore the agreed rent. Generally, the assumptions will suit the landlord and prevent the tenant arguing for an otherwise lower rent.

A common example of an assumption would be that, at the rent review date, there is to be a minimum period of the lease left to expire. This applies even if the actual unexpired term is shorter.

If, for example, the assumed minimum period is 10 years but the lease has only five years left to run, this is considered legally acceptable. Landlords prefer this provision if it means the rental value is better for a 10- year term rather than a five-year term.

Other examples of acceptable assumptions are:

•That the tenant has complied with all the lease covenants including repair

•That the premises are fit and ready for immediate occupation by the incoming tenant

•That the premises have all the necessary consents for the purposes required by the incoming tenant

•That in the case the demised premises have been destroyed or damaged they have been fully restored.

However, many draft leases produced to a tenant's solicitor contain assumptions that should be avoided. Here are two that are commonly put forward by landlords:

•That the premises are let as a whole or in parts (if the premises could be let in parts, the sum of the rent achievable for the parts may be greater than the whole).

However, this type of clause may be unavoidable if the premises are actually sublet in parts or the lease authorises it.

•That the premises are ready for immediate occupation and fully fitted out for the purposes of the incoming tenant.

The first part of the assumption is acceptable but if, for example, expensive equipment has to be purchased for the

premises to be used as a surgery, the words in italics produce a fictitious assumption that the premises are already fitted out

so this will dramatically increase the rental value.

Disregards

Disregards are lease clauses that prevent the landlord from arguing certain factors for a higher rent than would otherwise be agreed, for example to include goodwill, tenants' improvements, etc, when valuing the premises.

They suit the tenant, therefore they are the converse of assumptions that usually suit the landlord.

Taken together, assumptions and disregards are designed to keep a level playing field when valuing the rent.

The presumption of reality

This legal maxim means the courts will exercise the valuing of rents as close to reality as possible.

Where the wording of a clause and its application is clear, the courts will not interfere so as to change what was agreed between the parties but the maxim can be useful where a particular clause is open to different interpretations.

Conclusion

Generally rent review clauses are negotiated by lawyers on behalf of a landlord or tenant with the assistance of a surveyor.

As a GP tenant, you should have the surgery premises inspected by a surveyor

before you enter into the lease due to the onerous repair covenants you could be undertaking.

Daphne Robertson heads a team of specialist NHS property lawyers at DR Solicitors in London

Take-home points

• Best rent should be compared with similar surgery premises in the area

• Your new rent is not likely to be lower than the old one, even if the market has fallen

• Most standard ‘disregards' favour the tenant

• Some common ‘assumptions' should not be agreed

• Always show the draft lease to your surveyor

Need help developing your premises?

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