A lease is a binding contract and, once concluded, cannot be altered without the landlord's consent, so it is important to ensure the terms reflect the immediate and anticipated future requirements of the practice.
There are numerous considerations to take into account, ranging from decisions about the length of the lease, to agreeing responsibility for property maintenance.
The break option
Unless there is a specific provision permitting early termination, the practice will remain liable to pay rent and comply with all other provisions in the lease until it expires.
This could cause problems if, for example, the premises no longer meet a practice's requirements. Therefore, it is advisable to try to negotiate an unconditional 'break' option in the lease, to allow for early termination.
If GP tenants do decide to break their lease, professional advice should be sought. The process of serving break notices must be followed with precision, otherwise the break could be deemed invalid.
If a suitable break clause cannot be negotiated, a short-term tenancy agreement could be considered. The Landlord and Tenant Act 1954 gives tenants a certain amount of protection, in particular the right to apply for lease renewal on expiry. Landlords can only refuse renewal in limited circumstances.
Most leases will be protected under the Act, unless the lease terms specifically exclude it. A shorter lease may be the best solution if a break option cannot be negotiated, although the level of rent is likely to be higher.
Developers as landlords
Where practices are taking on leases with a developer who bears a substantial part of the cost of, and responsibility for, building a new surgery, the developer will require a long-term lease in exchange for the investment.
Experienced developers in the healthcare sector will be familiar with most of the property questions facing GPs, which should facilitate negotiations.
There are many other things to look out for when negotiating the terms of a lease. Here are a few dos and don'ts of taking on leasehold properties.
- Check the provision allowing assignment or underletting. It should provide for the release of retiring partners from future liability on assignment of the lease to new partners. The landlord may insist on an authorised guarantee agreement from any outgoing partner as a condition of giving consent, with the effect that a retired partner will continue to be liable under the lease.
- Check the scope of any repairing commitments. Always obtain a survey of the condition of a property from a building surveyor. If there are concerns about the building or any major items, ensure a schedule of condition is agreed at the time of lease or, even better, exclude items nearing the end of their useful life from repairing obligations.
- Check the scope of any maintenance or service charge provisions. Consider how the replacement of expensive items and the level of any managing agent's costs will be managed.
- Check any rent review clauses. These should be linked to the rental value attributed to the premises by the district valuer for rent reimbursement purposes. Developers will be familiar with this concept but resistance may be encountered from private landlords who are looking for 'upward only' rent reviews.
- Check the ability to make alterations and any obligation to reinstate the premises to their original condition at the end of the term.
- Try to save money by failing to take bespoke specialist professional advice - this could be a false economy.
- Undertake huge amounts of repair work at the end of a lease without taking professional advice about your actual liability.
- Be tempted to take up occupation without formal documentation. There is a risk the practice could be evicted with little notice if negotiations do not proceed as anticipated.
- Sublet surplus space without considering the financial consequences and obtaining the landlord's consent - it may affect the notional rent reimbursement and future rent reviews.
It is important for GPs to consider the extent of all obligations to be taken on under the lease and their impact on finances and any future plans for the practice. Finding the time to deal with what can be time-consuming negotiations is always problematic. However, time spent considering these matters will save money in the long term.
- Angela Hardman is a partner at law firm DWF www.dwf.co.uk