When you’re negotiating a lease for your GP practice it is important to ensure that you are aware of all the potential costs you may incur throughout your tenure – especially when you could be faced with bills running into many thousands of pounds.
One key area where costs can quickly mount up, and where disputes between tenants and landlords are common, is repairs, maintenance and reinstatement of the premises. This is particularly true if you are signing a full repairing and insuring lease (FRI), which places full responsibility for all such costs on your shoulders, as tenant.
Here we take a closer look at how you can best manage your obligations and minimise any potential for dispute.
- What is a Full Repairing and Insuring lease?
As the name suggests, under this type of lease the full cost of all repairs and insurance will be borne by you as tenant. This is true whatever the repairs may be, whether external, internal or structural. It is also established law that as part of your FRI obligations you must repair the property even if it is in a poor condition at the start of the lease.
If you are the sole occupant of a building on an FRI lease (a ‘lease of whole’), you will normally have full responsibility for the maintenance of the whole property. If you occupy a surgery which forms part of a larger property (a ‘lease of part’) you will be responsible for repairing the interior of the surgery, and will share with the other occupants the cost of repairs to the structure, exterior and common parts of the property through a service charge.
In addition to keeping the property in ‘good repair’ throughout the term, you may have to return the interior and/or the exterior of the building to their original state at the end of the term.
If you are in breach of any of your obligations during the lease, then your landlord may be able to claim damages, including the costs of repairs, loss of rent and any other damages. At worst, your landlord may seek to terminate the lease.
What are repair and reinstatement obligations?
Your responsibilities should be clearly set out in your lease. Typically, they will include:
- A responsibility to keep the premises in good condition throughout the term of the lease, not just at the end of the term (such as maintaining the roof, the heating system, the windows and doors etc)
- An obligation to clean and redecorate at regular intervals through the term and/or at the end of the term
- An obligation to remove and reinstate any alterations you have made
What do you need to be aware of?
The main problem you face with an FRI lease is that irrespective of the cause of the damage, as tenant you will be responsible for funding any repairs to the property – even if the damage was due to negligence on the part of the landlord. One rare exception may be if the landlord has already insured against a certain risk, details of which you should be able to find in the buildings insurance documentation.
A common cause of dispute is interpreting the extent of this repairing obligation. Leases can use phrases such as ‘the Tenant shall keep the Property in good repair and condition’, or ‘in a tenantable condition’. Even the word ‘repair’ can mean different things. This type of terminology is subject to endless legal wrangles between landlords and tenants.
Some lease agreements even include an obligation to rebuild. This carries a far greater potential risk to you as tenant, so is something to avoid, especially when signing a relatively short term lease.
Taking steps to protect yourself
If you are going to enter into an FRI lease then there are steps you can take to better protect yourself:
- Prepare a Schedule of Condition
Enlist the services of a specialist surveyor, who can examine and record the present state of the surgery. Your legal team should be able to help point you in the right direction with an introduction.
The surveyor will put together a ‘Schedule of Condition’ (SoC) for you, which may be written or even better, photographic. This will give you a detailed record of the state of the premises at the beginning of the contract. It may also highlight any important structural concerns or existing damage to the property that you may need to repair. You should then seek to limit the lease obligation to maintaining and reinstating the building to the same state and condition that it is in when you move in.
The SoC should be attached to and form part of the lease before it is entered into. If your landlord doesn’t want to agree to one at first, then persevere, as they will usually accept one eventually. But even if your landlord won’t agree, you should arrange to have one drawn up for your own records, as it could still be a useful piece of evidence when negotiating ‘dilapidations’ at the end of the lease.
- Ensure you understand the extent of the obligations in the lease
The extent of your obligations can turn on a single word or phrase in the lease. Since this is such a controversial (and expensive) area, the meaning of these terms has been clarified over the years through case law. The ‘real’ meaning is often not obvious to laypersons, so you would be well advised to have them explained by a specialist solicitor.
- Understand and negotiate the Service Charges
Ensure you understand what you will be paying for through the Service Charges, and negotiate accordingly. For example, why should you contribute to maintaining the lifts if you are only using rooms on the ground floor?
- Consider holding a sinking fund
As partners approach retirement, they have an incentive to leave the repairing and maintaining obligations for later generations to pay. This can cause some very nasty surprises for incoming partners. Best practice is to allocate an appropriate share of the rent reimbursement to a repairs and maintenance sinking fund.
Also, bear in mind that the less you spend on maintenance and service charges during the course of a lease, the more you may end up paying to reinstate at the end of the lease. This can create problems, especially for joining and retiring partners who will want to understand what the obligations are likely to be – particularly if there aren’t many years left to run.
Due to the huge responsibility and cost that an FRI lease places on tenants, it should always be entered into with caution and only after taking legal advice. Remember that a tenant has obligations for the full term of the lease and not simply whilst a partner in their practice.
And one final word of advice: no matter how good a relationship you may feel you have with your landlord, never rely on good faith or memory. Landlords move on and the landlord in situ when your lease eventually comes to an end may well view things differently to your current landlord.
For more advice on lease negotiation, please contact Daphne Robertson at DR Solicitors:
Tel: 01483 511555,
You may like to download our free eBook ‘Top ten tips when agreeing a surgery lease‘.