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Reviewing pharmacy leases to achieve market rent

GPs must take action to avoid losing out on a 68% pharmacy rent increase, writes James Williams

Do not feel you are rocking the boat by actioning a rent review
Do not feel you are rocking the boat by actioning a rent review

GP practices which lease surgery space to a pharmacy should seek professional advice to ensure they are not settling for a rent which is too low.

Based on pharmacy rent review and lease renewal cases since November 2012, GP Surveyors has negotiated average pharmacy rent increases of 68% for GP practices across the UK. This amounts to an average increase of £12,000 per year. The largest increase we negotiated within this time period was 207% or £33,908 per year.

To put this into context, if a surgery has agreed to a 25 year lease with a pharmacy, a rental increase of £33,908 per year amounts to £847,700 over the full term which is a huge uplift.

This potential increase in rental income is vital, especially now the financial burden on GP surgeries nationwide is so great. There has been a lot in the news recently about GP surgeries being at risk of not complying with the premises standards of the CQC. A £12,000 increase in income per year would allow a practice to make the necessary premises alterations. What could you do with an additional £12,000 per year? 

These latest figures show the huge difference between the rent many pharmacies are paying to GP surgeries and the market rent they should be paying. Here are my top tips for ensuring your surgery receives the correct rent for the precious space you lease to your pharmacy:

Top tips

1: Identify and note review dates: There should be details in your lease agreement which specify how regularly you can review the rent your pharmacy pays; the most common frequency is every three years. It is unlikely your pharmacy will remind you about a rent review. Make sure you know when your pharmacy rent reviews are and put them in your diary.

2: Look into back-dated increases: If you have missed pharmacy rent reviews, it is sometimes possible to review the rent retrospectively and gain a back-dated increase. This depends on the terms of your lease; however it is worthwhile asking a specialist surveyor to investigate it on your behalf.

3: Remember this is business: If you have a good relationship with your pharmacy, do not feel you are rocking the boat by actioning a rent review. You have a legal right to ensure your pharmacy is paying the correct rent based on the terms of your lease. The rent may already be correct and it is unlikely the pharmacy manager will have much to do with the review itself if it belongs to a chain. Pharmacy companies often have their own teams of specialist surveyors who act on their behalf in negotiations, so ensure you protect your own interest too.

4: Boost the value of the pharmacy: Be open to looking at options which may improve the value of the pharmacy, for example, exploring whether or not a shared entrance with the pharmacy can be created internally with the surgery. In many cases this will enhance the rental value of the pharmacy through increasing patient access itself. 

5: If you do not have a pharmacy in your practice, consider opening one: This can be a great way of increasing your income. GP surgery space is so highly sought after, that some pharmacies can be willing to pay a lump sum up front and potentially fund any required changes to the surgery premises in order to better accommodate the pharmacy. Pharmacies often do not occupy much floor space which means that rents can appear high and attractive. Pharmacy rents are usually based on patient script numbers rather than solely the amount of space that they use in the surgery. 

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