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Whether you are looking to take a lease of premises from NHS Property Services, CHP or another landlord then the process will usually start with the preparation and negotiation of document known as “Heads of Terms”.
This document will identify the key commercial terms that have been agreed by you and your landlord when it comes to leasing premises. They represent an exceptionally useful tool in enabling the parties to focus on and address the core issues at an early stage. As a consequence a decent Heads of Terms document can significantly reduce the time that you and your professional advisers need to spend in handling your leasing arrangements and therefore the costs.
Although not an exhaustive list, this note looks to provide the top sector specific tips for you to think about when negotiating Heads of Terms:-
It is usual practice for the Heads of Terms to state that they are either “Subject to Lease” or “Subject to Contract”. By including such a statement you ensure that relationship does not become binding until the formal lease has been signed off and exchanged between you and your landlord. As a consequence you (as well as your landlord) may withdraw without penalty.
Be clear as to the extent of the premises you are actually taking under the lease. A detailed description and plan will ensure that you are leasing what you expected to lease and, when read alongside your repairing obligations, identify where your repairing obligations start and finish.
Be clear what your starting rent will be and (where relevant) obtain the prior approval of your funder to reimburse these sums and any VAT that may be payable on the same in full. A shortfall will be your personal liability.
You generally find that leases will either be subject to an “open market” rent review (whereby the rent is reviewed by reference to changes in the rental market) or an “index linked” rent review. Whichever review process is introduced be careful to ensure that any new rents that are being proposed following a review are subject to your funder reimbursing the same. If there is a shortfall in the amount you are reimbursed to that which you have to pay then this shortfall will be your personal responsibility.
If you are a practice who will be seeking reimbursement of service charge costs please bear in mind that not all service charges are reimbursable and of those that are you are currently only able to reclaim approximately 60% of the cost. Consider introducing or asking for the following:-
i) Records for past service charges that have been charged in respect of the premises or the estate within which it is located;
ii) Details of any forthcoming items of expenditure that are known;
iii) A cap on the service charge that you will have to pay;
iv) A requirement that the service charges must be reasonably and properly incurred;
v) An ability to dispute service charges that are felt to be excessive;
vi) A requirement that the services will be provided on a “not for profit” basis.
You should seek to avoid any responsibility for placing the premises in any better state of repair and condition as exists when you first take occupation of the premises. This is achieved by preparing a schedule of condition which will identify any items of disrepair which will, effectively, not form your responsibility to address.
Consider flexible assignment provisions which at the very least allow you to freely assign the premises to other partners within your practice so as to ensure that retiring and incoming partners can be removed and added at will.
Remember that your lease and core contract are not automatically linked. Indeed, if you lose your core contract (which in turn means you lose your ability to seek reimbursement) your lease will not automatically end. A break clause must be negotiated which allows you to walk away. Unless this occurs you run the very real risk of being held personally liable to meet the rental payments for the remainder of the term.
Be clear on how long you will be leasing the premises for. Once this is known go onto consider whether you will have a statutory or contractual right to renew your lease when the lease term ends.
Although not relevant in Scotland, security of tenure is effectively a phrase used in England, Wales & Northern Ireland which means you are protected tenants under either the Landlord & Tenant Act 1954 (in England & Wales) or the Business Tenancies (Northern Ireland) Order 2006 (in Northern Ireland).By being a protected tenant you will have a statutory right to call for a new lease at the end of the lease term. The Landlord can only refuse in a limited number of circumstances (e.g. if he wants to redevelop).
In England & Wales be aware that you can contract out of the protection of the aforesaid mentioned Landlord and Tenant Act. Be careful though. If you do the landlord has no obligation to renew your lease when it expires.
Get advice early.
Robert Day is a senior solicitor at BMA Law
If you are in the process of negotiating Heads of Terms or taking a new lease and would like specialist help to cover and protect your interests please contact BMA Law on 0300 123 2014 or e mail [email protected]. Set up by the BMA to support its members, BMA Law provides a range of quality sector specific legal services at discounted fixed prices.
What would happen, if we signed a 20 year lease on new premises and the practice can not attract new partners when the last current ones want to retire?
Are the retired partners still liable to pay the lease?
Hi, it would really be dictated by the terms of your lease.
Generally, unless the terms of your lease are linked to you continuing in practice then the lease obligations will continue to bind you even after you retire.
Ideally, therefore, your 20 year lease will contain a break clause which would enable the last partner/ partners to end the lease where they retire from practice.
Break clauses in this instance commonly refer to a practices core contract coming to an end (i.e. a tenant can serve notice to break the lease on their landlord where their core contract is coming to or does come to an end).
If such a break clause isn't included, then there may be other options, including:-
i) (where the lease contains provisions enabling the same) assigning the lease to another person or practice,
ii) (again where the lease contains provisions enabling the same) granting an under lease to a sub-tenant (this would mean that although you remain the head tenant with primary responsibility for the lease obligations you will have a tenant sitting below you who would assist in mitigating your liabilities - for instance they will be paying a rent which is hopefully equivalent to what you are obliged to pay under your lease),
iii) a practice merger.
Taking a different approach you may want to also consider your practice / partnership agreement and ways in which you can
a) reduce any actual or potential barriers on new partners joining your practice (this could be, for instance, allowing them time to build up any capital that you want them to introduce), and/or
b) protect partners from being saddled with the liabilities of a practice where a number of their co partners retire without being replaced.
I hope this helps.
From landlord point of view would you advice taking responsibility for paints and floors every few years or would it be tenants responsibility
This is really a point for discussion and agreement between the Landlord and Tenant. There are no set rules.
The most common situation is that the Tenant would pick up the responsibility but much would depend on the state of repair and condition of the flooring/ decoration. If the premises is in a bad state of repair and condition then it is not uncommon to see the Landlord picking up the responsibility (at least initially / until the next time the flooring is changed and the re-decoration occurs).
Hi, We are being pushed to extend the lease on our building to 20-30 years. It currently has about 6-7 years left on the current lease. The landlord has previously insisted on having 3 partners names on the lease. We would prefer the lease to be in the partnership name to protect leaving partners and to avoid the costs of amending the lease. Should we be able to do this? I understand the rationale of the break clause- this is obviously something which you would recommend. Is there any other advice? The landlord is also offering to help us with costs of some internal works subject to extending the lease. The lease is a full repairing lease. Thanks!
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