Cheema vs Jones: The importance of an up-to-date Partnership Deed
Regular readers will understand the importance of keeping your partnership deed up to date. This is particularly true when new partners join, as this can easily supersede and invalidate the former partnership arrangements. A recent High Court case has demonstrated some of the risks.
The case of Cheema vs Jones
In this case, two GPs – who we’ll refer to here as A and B – entered into a partnership to provide medical services under a GMS contract. The terms of this agreement were set out in a Partnership Agreement which was signed in April 2016.
Shortly afterwards, A and B decided to admit doctors C, D and E into an expanded partnership, and it was agreed that this larger partnership would start on 1 July 2016.
Solicitors were instructed to prepare a new partnership agreement. However, before the terms could be finalised a dispute arose between A and B. Matters escalated and when B was prevented from seeing patients and refused access to medical records, B obtained a High Court injunction allowing him back into the surgery.
A, C, D & E then served a Notice on B dissolving the partnership. Their intention was presumably to exclude B, enabling the others to continue the practice without him.
The High Court agreed with A, C, D & E that a Partnership at Will had been created in July 2016, and the April Partnership Agreement was no longer relevant. They were therefore entitled to dissolve it by serving notice on B.
Consequences
Sadly, A, C, D & E’s High Court victory was pyrrhic. By dissolving the partnership they immediately put the GMS contract at risk since this was held by a Partnership which no longer existed. Within weeks the practice had been given notice by NHS England and a temporary contract to ensure continuity of care had been placed with another practice.
Key lessons
- When you are considering admitting a new partner to the practice, make sure you agree the terms of the partnership in advance. This can be either a Deed of Accession to the existing Deed, or by signing a new Partnership Deed.
- Always issue a comprehensive partnership offer letter to prospective new partners. This will set out the key terms of the appointment and help ensure the current partnership deed continues, at least in the interim. For more information see: Why is a partnership offer letter so important?
- Probationary periods are not relevant to the continuation of the ‘old’ partnership. Once a new partner joins, the old partnership arrangements fall away unless there is strong evidence to the contrary.
- It is always very risky to dissolve an NHS medical partnership. The contract and the future of the practice is immediately put at risk. Dissolution is such a draconian step it should normally only be undertaken as a last resort and with very careful contingency planning.
- Having an up-to-date partnership deed is your best protection in the event of a dispute. It can be invalidated in whole or in part for a number of reasons, so you should revisit it on a regular basis. For further information see: The dangers of having an out of date partnership deed
Our recommendations
The Partnership Agreement is a critical document for managing your practice and securing your future. Revisit it regularly, always use a solicitor who is experienced in Primary Care matters, and don’t rely on unregulated ‘advisers’ or borrowed templates.
For all your partnership matters, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com
News
The importance of agreeing a break clause for your surgery lease
If you rent your premises, one of the key questions is when and how you can be released from your obligations under the lease. If for some reason you want to vacate your surgery premises, you will either have to wait until the end of the lease term, or rely on a break clause. It is, therefore, an important point to consider in the lease negotiation process.
What is a break clause?
A break clause is a provision within a lease that enables either the landlord, practice, or both parties, to end the lease early.
When one party to a lease tries to exercise a break clause they will often find the other party is reluctant to agree, as the landlord will be losing a valuable income stream, or the tenant will be left with the problem of finding somewhere else to practice. It is therefore vital that break clauses are negotiated well, drafted carefully, and are followed to the letter to avoid costly and protracted disputes.
Common break conditions
These may include:
- a fixed date or dates at some point in the future
- the right for a tenant practice to terminate the lease after a certain date, or
- the occurrence of a specific event that can act as a trigger.
As an example of the third type, a surgery lease would usually include a termination right in the event of the end of an APMS/GMS/PMS Contract, or the term of such a contract expiring without renewal. This should be linked with voluntary termination of the relevant contract, so a practice has some control.
The NHSPS standard lease contains a form of break option and does allow for voluntary termination. However, there may be other circumstances under which you wish to end the lease, so it needs some consideration.
How and when notice can be served
This will specify the form in which notice must be served, the method it must be served by, to whom it should be given and the timeframe within which it must be given.
One issue that can arise here is if the break clause notice period doesn’t mirror the notice period required to terminate the APMS/GMS/PMS Contract. This can lead to a practice having to pay rent after the contract has ended.
The NHSPS standard lease recognises this in principle, but it needs to be more fully addressed in the detailed drafting.
Break pre-conditions
These are the conditions which need to be met in order for a break to be achieved. They should be both clear and attainable. For example, practices may be required to be up to date with the annual rent and any other monies owed. Landlords also often want a break clause which requires full compliance with all the other terms of the lease.
Such conditions attached to Break options can be very difficult for a tenant to comply with. Even minor breaches can mean that the Break Option cannot be exercised, so such conditionality should be resisted where possible.
Recovery of any overpayments
Most leases require that payment of monies such as annual rent, service charges and insurance are made in advance. If a lease is terminated using a break option, then a surgery will not be entitled to a refund of any sums paid for the period after the break date – unless it has been specified in the lease.
The NHSPS standard lease includes a refund for rent, but not for service charges or other sums that may have been paid in advance.
Our recommendations
There are many commercial, legal and practical issues to consider when agreeing a break clause. And when it comes to exercising one, great care needs to be taken to ensure all conditions are followed to the letter, so it remains valid.
While the NHSPS standard lease is relatively well balanced, there are still important enhancements that need to be made, based on an individual practice and its circumstances.
When it comes to negotiating a lease – and with the importance that the drafting of that lease will have for a practice – it is always advisable to seek the advice of an experienced solicitor who can guide you through the process, while ensuring your interests are protected.
Other articles in this series which you may find useful include: ‘How to Successfully Negotiate a NHS Property Services or CHP Surgery Lease and NHS Property Services (NHSPS) standard lease
For more information about negotiating a lease, or any other related issues, please contact Daphne Robertson on 01483 511555 or email d.robertson@drsolicitors.com