Thinking of ‘shutting up shop’? What are your options regarding your leased premises?
Having the security a lease offers you is important when you are operating your business, but what happens if you no longer wish to practice from that location? There are a number of ways a lease can be brought to an end, but whether they are available to you will depend on how your lease is drafted. In this blog, we discuss some of the more common options that might be available to you.
1. Expiry of the Term
The simplest way is to wait until your lease expires. Leases are usually for a defined period, e.g. 10, 15 or 20 years, and it may be that you are approaching the end date of your lease. Depending on the type of lease you have, you may not need to do anything to bring it to an end, this will simply happen when the term expires. However, your lease may require you to serve notice on the landlord, depending on when you intend to vacate the premises (this is particularly relevant if your lease is protected by the security of tenure provisions of the Landlord & Tenant Act 1954, which we have written about in more detail here).
We recommend that you check your lease (or that you instruct a solicitor to do so) as soon as the subject of termination is discussed. It will be important to assess the type of lease you have and what processes you need to follow to ensure you can bring the lease to a close at the end of the lease term.
Remember that even if the lease comes to an end, that does not always mean that your liability ceases. For example, you may be responsible for repair and decoration costs to bring the premises up to the standard required under the lease and the landlord can recover these costs from you even after the lease has expired. This can be expensive, although some of the costs may be recoverable from NHSE/the CCG. Where you have such an obligation, it is important to consider how the liability is accrued or you risk partners seeking to retire ‘just in time’ to avoid having to contribute.
2. Break clauses
Some leases contain break clauses which allow either the landlord or the tenant (or both) to bring the lease to an end before the term expiry date. Such clauses are individually negotiated when you first enter into the lease, and the terms of the break and when it can be exercised vary enormously. Typical examples could be a break after set periods (e.g. every 5 years) and some GPs have also been able to negotiate breaks linked to termination of their core contract. You may want to read our blog to explore break clauses in more detail.
Before seeking to exercise any break clause, you should ensure you take professional advice. There are usually a number of conditions attached to a break, which an unwary tenant may fall foul of. Whilst some of these conditions may sound reasonable in practice (e.g. being up to date with all payments of rent and service charges) these can actually prove difficult to comply with, as courts strictly interpret the wording of any break condition. There has been a recent case where even though the landlord had not requested a particular payment (in this case, of interest) due under the lease, the tenant’s failure to pay the un-demanded payment was deemed to be a breach of the break condition, and resulted in the tenant being unable to exercise their break clause.
This is the right for the tenant to assign (i.e. sell or transfer) the lease to another party. If you do not have a break clause and you are some way from the end of the lease term, this may be a viable option if you can find another tenant interested in the premises. Landlords will need to be involved in the process and they almost always want to approve a potential new tenant. There may also be specific conditions set out in your lease that you have to comply with – such as the type of tenant - but as a general rule, the landlord cannot unreasonably withhold consent. In some instances, you may be required to guarantee the entity you are assigning to, so be aware that you may still have a residual liability under the lease.
If the landlord lawfully objects to the assignment, an alternative may be to ‘underlet’ the premises to the entity rather than assign it. Whether or not you are allowed to do this will depend on the terms of your lease and you need to be aware in this instance that you will still be the head tenant, so will still have the ongoing obligation to pay rent etc. to the landlord. Hopefully you will be able to recover the same from your under-tenant.
If all else fails, you may be able to negotiate a surrender of the property with your landlord. The success or otherwise of this will be based purely on commercial negotiation. There may be a value to the landlord in taking the premises back and using it for other purposes (for example redevelopment, or to grant a new lease to a tenant that attracts a higher rent) – but there are no guarantees that a landlord will be open to such discussions.
Careful thought and legal advice is crucial when entering into a lease to ensure you have built in as much flexibility as possible, given the strengths of the relative negotiating positions. If you are considering closing your main or branch surgery premises, then an assessment of your lease by a solicitor is important to enable you to evaluate the options and make sure you comply with your obligations.
For more information on terminating your lease, or anything else, please contact Daphne Robertson on 01483 51155 or email [email protected]