Is your surgery lease coming to an end?
GP practices are increasingly occupying their surgeries as leasehold tenants. It is a trend that has been happening for some time now, so many practices are approaching the end of their lease.
As a surgery lease is one of the most important and complex contracts a practice can enter into, it is important to plan ahead and take action early. Here are some of the key points to address in your plan:
Questions to consider
1. What are the key dates for your lease?
It is vital that you are aware of and understand the key dates specified within your current lease. Make sure you diarise the lease expiry date and also the dates of any break clauses, so you can begin to plan at least 12 months in advance.
2. Do you wish to vacate the surgery?
The default position at the end of a lease will be for you to vacate the premises before the lease expiry date. If this is what you intend to do, you need to ensure you have somewhere to move to and that NHS England is prepared to fund the new premises and change your contract accordingly.
If you wish to close the practice when you vacate the premises, then you must give NHS England sufficient notice – which is six months under GMS contracts. You would then need to close the business, which could be a lengthy process and is likely to involve staff redundancies, as well as settling various business liabilities.
3. Do you wish to remain in the surgery?
If you wish to remain in the surgery your negotiating position will be affected by the wording in your current lease. If it includes ‘Security of Tenure’ under the Landlord and Tenant Act 1954, then you will have the automatic right to renew your lease on terms similar to those in your current lease (subject to certain conditions). However, many surgery leases will specifically exclude this.
Regardless of whether you have security of tenure or not, you will need to negotiate a new lease with your landlord. Like any negotiation, it is important to understand the strength of your position, and to ensure that you negotiate in good time to secure yourself options. Bear in mind renewing a lease, can be a very different negotiation from a new occupation.
4. What happens if you do nothing?
Surprisingly, many practices continue to occupy a surgery after their lease has expired, but this can have serious implications and risks. Again, a lot will depend on the wording of your previous lease and also any correspondence you have entered into with your landlord about your current occupation.
If you continue to pay rent and it is accepted as such, then it will probably hold that some form of landlord/tenant relationship exists. But beyond that you face a number of potential problems, such as:
- The risk that the landlord could seek to recover possession
- The possibility that you may have inadvertently consented to some onerous lease terms
- The risk that you will be prejudicing your rent reimbursement.
Furthermore, any joining or leaving partner will want to understand any risks they are taking on, or be confident that they have fully left their obligations behind. These may be difficult to quantify in this situation.
In summary
There is an old saying that the ‘L’ in lease stands for liability. As some of these liabilities only crystallise around the lease expiry date, it’s important to understand what your obligations are.
Early planning for your lease expiring will both reduce your risks and improve your negotiating position. We strongly advise that you seek specialist advice early in the process.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
News
What can go wrong with a surgery move or redevelopment?
Making the decision to move to a new surgery, or to redevelop your existing surgery building, is a big step. In fact, it is likely to be one of the most complicated legal transactions a practice will ever undertake, carrying significant financial and legal risks.
Once you have successfully secured a share of the NHS premises development budget, you need to think about managing this complicated process.
There are too many differing scenarios for us to cover them all in this blog and not all of the issues we mention will be relevant to you, but we highlight below some of the more common problems we encounter during transactions of this nature.
1. Partnership changes during the process: change within any partnership is reasonably common, but in this situation it can create confusion as to who has certain obligations and who doesn’t. What obligations does an incoming partner take on, and will a retiring partner be released from his or her obligations? In addition, if you have agreed to sign up to a new lease, there is a risk that the number of partners may drop below the minimum number of tenants specified in the lease.
2. Signing a development agreement without District Valuer (DV) approval: the premises funding approval process must be followed to the letter. One common misconception is that DV approval can be sought once the building is up and you are ready to sign the lease. In all likelihood this is too late in the process as you are already committed.
3. Lack of understanding of the total lease costs: this is a very common issue, particularly when it comes to service charges: what non-rent costs are payable, and how will they be financed?
4. Using a limited company to try and manage risk: some practices try to manage their risks by putting the property or lease in a limited company. This is not something you should do without specialist advice, as it often results in significantly higher cost and no risk reduction.
5. Misunderstanding the difference between an agreement for lease (AfL) and a lease: the AfL binds the signatories to signing a lease – subject to certain conditions being met. All development works are therefore associated with the AfL and it can often be a year or more before they are completed. Some practices sign the AfL thinking they will be able to negotiate the lease at a later date, but this is not the case.
6. Overlooking the partnership agreement: it is important to bind all partners into the obligations under the lease and AfL. Since only a subset will be signatories of these documents, it is critical that the risk and obligations are properly shared through an up to date partnership deed. Remember that occupation of the surgery is a vital feature of the partnership so these documents must work properly together.
7. Not seeking advice from a specialist surveyor: a specialist surveyor needs to be involved in any surgery development, to ensure all works are compliant with the regulations. Otherwise, the funding will be put at risk.
8. Failure to properly consider tax: there are many potential tax savings associated with a development, but it requires careful consideration and planning if these are to be maximised. This will need to be done far in advance.
Our recommendations
In certain circumstances, it can make sense for a practice to work on resolving an issue itself – but developing a surgery, or moving premises is not one of them!
With the amount of complexity involved and so much at stake, we would advise any practice considering development, to enlist the support of an experienced team, including a specialist solicitor, surveyor, and tax adviser. That way you can ensure you have everything covered and are fully compliant and protected.
If you need help in this area, we are always happy to introduce clients to the extensive network of contacts we have built up, to help ensure the success of your practice.
For more information, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com