Complex legal documents can test your time and focus, and leases are no exception. This back-to-basics, eight-step guide will help you get to grips with GP premises leases, and how they interact with your core contract and reimbursement.
Why is a lease important?
A lease is a crucial contractual document where the owner of a property or land grants exclusive possession of that property or land to another person (the tenant or lessee) for a fixed or periodic term, at a specific rent.
It is important as it sets out the rights, obligations and restrictions which benefit and bind you in your use of a premises. The terms of your lease is what will be considered if you have a dispute with your landlord.
There are three fundamental aspects of a lease:
- The tenant must have exclusive possession of the premises (the right to use a premises to the exclusion of all others, including the landlord).
- It must be for either a fixed or periodic term (this is usually in line with how often you pay rent).
- The payment of rent.
There is no particular format for a lease. However, a lease that is over seven years in length needs to have an opening ‘prescribed clauses’ section. This is in a format set by the Land Registry and generally gives an overview of the lease provisions.
What a lease should always contain
The extent of the premises to be let by the tenant. This is crucial, as is usually done by reference to a plan, which must comply with Land Registry requirements concerning scale, keys etc, and a detailed description.
The period of time during which a tenant will be able to occupy the premises.
Reviews are usually done by reference to the open market. Rents are reviewed in comparison to changes in the rental market, or a defined index, such as the retail price index.
More often than not, rent reviews lead to an increase, particularly if the reviews are stated as being upward only.
- rights to use communal facilities such as toilets and lifts
- rights to park cars in parking spaces
- rights to connect into service media (cables, pipes, etc) serving the premises which are located in the wider ‘estate’
- rights to gain access to neighbouring premises when carrying out repairs and maintenance to the property.
Any rights that a landlord anticipates they or any neighbouring occupiers or tenants require over a premises that are to be let must be expressly identified in the lease.
Care should be taken when considering the extent to which the landlord may be looking to reserve rights – if they are excessive, they may undermine a tenant’s use of the premises. For instance, the right to vary communal areas could affect a tenant if the change is less commodious than originally enjoyed.
The tenant’s responsibilities for repairing and maintaining the premises and the plant and machinery therein, such as air conditioning units and radiators, should be identified in the lease.
Depending on whether the premises are new or old, the lease may refer to a schedule of condition or a ‘snagging list’. This identifies items that the tenant is not responsible for addressing, eg damp patches or scratches to doors or walls, or broken windows.
Payments that a tenant will be required to make to their landlord (or appointed agent) in return for the provision of services or maintenance to the premises, or the wider ‘estate’ or building in which it is located. Where such services are provided, the lease commonly identifies:
- the services to be supplied
- how the tenant’s proportion of such costs will be calculated
- whether there is a cap on these charges
- when and how the service charges are to be paid
- how disputes over the sums being charged will be resolved.
Security of tenure
In basic terms, this acts as protection against tenants being evicted at the end of their lease term.
Read more about service charges and security of tenure
Specific considerations for GPs
- If you lose your core contract, you will lose your entitlement to claim reimbursement. If this happens, you should have the option to break your lease.
- What is payable under your lease may not mirror what you can get reimbursement for.
- Ensure the sums you are required to pay reflect reimbursement, and be clear on the shortfalls. Where shortfalls exist (eg in connection with services charge payments), consider the need for financial caps.
- You should take account of changes in the hours or ways in which you may decide or be required to operate your practice in the future. Consider the need for flexibility if mergers, networks, vanguards or other new ways of working may become a possibility.
Registering at Land Registry
If you are granted a lease for a term of more than seven years, the lease must be registered at Land Registry.
On registering the lease, you will be allocated a Land Registry title number unique to the leasehold interest you have been granted. The associated details of your leasehold interest, in particular the lease itself, will be stored centrally and available for public inspection. The process of registration will involve you or your professional adviser completing the appropriate Land Registry form.
Subject to the exemptions below, when you are granted a lease you are required to submit a stamp duty land tax return (known as form SDLT 1) and pay the tax. The rate of tax depends on the value of the rent you pay over the term of the lease (known as the ‘net present value’), and the premium or consideration you pay for it. Use the online calculation tool to work out how much you will pay.
Where the terms of a lease provide for a rent review within the first five years, the rent is, for the purposes of HMRC and the calculation of SDLT, deemed variable and uncertain at the date of grant.
Once the review has taken place it may be necessary to submit a further SDLT return and pay a top-up amount.
Exemptions from stamp duty
Two main exemptions apply to leasehold premises:
SDLT (stamp duty land tax) is not payable when you take a lease for a term of seven years or more, when the premium paid for the lease is less than £40,000 and the rent is less than £100 per annum.
SDLT is not payable when you take a lease for a term of less than seven years where the chargeable consideration is less than the SDLT threshold, currently £150,000 for non-residential premises.
Chargeable consideration includes any premium and the net present value of any rent payable in respect of the lease. To work out the net present value based on the average rent over the life of the lease, you can use the SDLT calculator.
What else to consider
Always take advice from professional advisers to ensure the proposed lease covers all of the sector-specific intricacies, as well as your requirements, before you enter into it.
As well as negotiating and agreeing the lease, professional advisers can, where appropriate, carry out checks and searches against the premises that you are seeking to let.
These are similar to the checks that would be undertaken by a solicitor when acting for you in buying a house, and would reveal the same sort of information, eg:
- title investigations – carried out against your landlord’s title to the premises, to make sure they are entitled to grant you the lease
- property searches – including environmental searches, drainage searches, and searches of the local authority (to cover planning issues, etc).