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Key Factors for GPs to Consider When Agreeing Tenancy Leases

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Taking on a new lease of a property is a major commitment for GPs – bringing with it a number of obligations for the tenant company.

hlw Keeble Hawson logoIt is vital to understand all provisions of the lease and below are some considerations to take on board.

  1. Flexibility – a lease should be negotiated to allow for flexibility. Consider requesting a break clause as a fall back if things go wrong or not according to plan.

    The most useful break clause is one that can be exercised by the tenant at any time after an initial period if a GP contract is terminated or not renewed. Commercial landlords are generally not happy to agree this, but some - for example local authorities or PCTs - might be persuaded

    It is more likely that GPs will be able to negotiate break clauses every 3 or 5 years, meaning the lease can be brought to an end at certain fixed points.

  2. Schedule of Condition – repair obligations often catch tenants out, especially in older premises. A Schedule of Condition should be agreed and preferably carried out by a qualified surveyor as part of the negotiations to help limit any work required.

  3. Rent review – always understand the implications of a rent review where this is agreed. If not, a tenant can find themselves subject to a review, which leads to an unexpectedly huge annual rent increase.

  4. Term – the term of any lease should be considered carefully. A longer term could give rise to Stamp Duty Land Tax implications.

    GPs can sometimes find themselves trapped between the interests of a commercial landlord or developer and the PCT. Developers will generally want to grant long leases to maximise the value of their freeholds, while PCTs will wish to steer clear of any risk to the premises.

    Termination or expiry of a GP contract will not usually bring a lease to an end. The tenant named in the lease will remain liable for payment of rent and all other lease costs until it expires or is otherwise ended, which could be many years later. Bear in mind that if a contract ends, so too will rent reimbursement by the PCT.

  5. Long leases – GPs should also be very cautious about taking on long leases as they cannot be sure that GP services will be required from those premises for a long period.

  6. Rent free period – where any works or fit-outs are required at the property, try to negotiate a rent-free period as the practice will not be generating any income during this time.

  7. Lessees – if the lease is taken in the personal names of the current partners of the practice, it is important to ensure it states that, on retiring, they are released from their obligations under the lease.

  8. Service Charge – commercial leases of premises that form part of a wider estate (for example, a health centre) may include a service charge, which will be payable in addition to the rent. Try to obtain as much historic information about this and agree a payment cap, if possible, to prevent any unpredictable increases.

  9. Look out for restrictions – commercial leases are usually drafted in favour of the landlord and can often include restrictions on the tenant’s action and areas that require the Landlord’s consent. Agree these at the outset, as further costs could be incurred.

While taking precautions up front will not necessarily prevent a dispute arising, they will reduce the chances of one - often saving considerable resource, effort and costs if a disagreement occurs.

To discuss issues relating to a tenancy lease for your practice, please contact Michael Peacock at michaelpeacock@hlwkeeblehawson.co.uk or on 0114 290 6287.

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