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My lease is coming to an end . . .

The lease on my pharmacy is nearly up. Can the landlord make me leave? The answer is not straightforward. It’s “maybe or maybe not”, depending on the circumstances in each individual case.

Most high street pharmacy leases are granted for a term of around 10 to 15 years, although health centre leases are often for longer periods. An NHS contract is granted in respect of particular premises and a relocation is subject to legal and competitor scrutiny. So sometimes it is not possible or desirable to relocate due to suitable premises not being available. Whether or not a tenant has a legal right to a new lease on the expiry of a current lease has always been an important matter for pharmacists to consider when taking a lease of pharmacy premises.

A tenant generally has a legal right to renewal at the end of a lease under the Landlord and Tenant Act 1954 (LTA) and the landlord can only oppose renewal on certain limited grounds. However, the problem faced by some pharmacists is that this legal right can be removed if the landlord and the tenant agree to “contract out” of the provisions of the LTA.

If the provisions of the LTA are “contracted out” this will mean that a tenant will have no right to remain at the premises at the end of the lease unless the landlord offers a new lease, a tenant has no right to compensation from the landlord on leaving the premises and a tenant has no right to ask the court to fix the rent if the landlord offers a new lease.

Before June 2004, in order for a tenant to lose its right of renewal of a lease, the landlord and tenant had to obtain a joint court order. The current procedure is much more straightforward and involves the landlord handing a warning notice to the tenant before the tenant is obliged to take the lease, and the tenant acknowledging its acceptance. There must also be a specific provision contained in the lease stating that the lease has been “contracted out” of the LTA.

When buying or opening a pharmacy, a pharmacy contractor may be granted a new lease or take a transfer of an existing lease. Because the statutory procedure described above only applies on the grant of a new lease, an unwary pharmacist could be caught out when taking a transfer of an existing lease from a seller if he or she doesn’t spot that the lease has already been “contracted out”.

This is why it is sensible that this question is addressed early in negotiations for new premises to ensure that time and money are not wasted. It should be one of the first things that your legal adviser checks when reviewing the terms of the lease. The worst scenario would be that a pharmacist takes occupation (perhaps through the purchase of a pharmacy or a relocation) thinking that he has a right of renewal at the end of the lease but finds out at a later stage that he doesn’t. Be aware that lending banks may also make it a condition of their loan facilities that the lease is protected if it only has a number of years left that closely match the capital repayment schedule of the loan (often seven to 10 years).

A lease premium is frequently negotiated in relation to a “prime location” lease, say, on the grant by a GP practice landlord of pharmacy premises within a health centre. What if the pharmacist has paid a lease premium to the landlord? Does this change the position? Unfortunately for the pharmacy contractor, the fact that it has paid a hefty lease premium doesn’t itself give a right of lease renewal.  If the lease is not protected then the tenant could find itself the subject of a lease bid exercise with its competitors in the future, with the value of the lease premium demanded next time around created by the pharmacist’s own hard work in developing a successful and profitable pharmacy at that location.

Finally, pharmacist tenants should be cautious of their landlords promising to convert the lease from its current contracted out form into a protected tenancy (perhaps for a significant fee). There is legal uncertainty about certain routes to achieve this and expert advice should be taken before any decision is made.

Nick Austen and Gemma Brown of specialist pharmacy lawyers Vertex Law LLP make sense of the common legal jargon relating to pharmacy premises and leases. Have a look at these PDFs for more information

Grant of a pharmacy lease

Assignment of a pharmacy lease

Authorised guarentee agreements

Rent reviews

Pharmacy lease dilapidations

Legal expressions

Vertex Law are pharmacy specialists, based at 23 Kings Hill Avenue, Kings Hill, Kent ME19 4UA.

Visit www.vertexlaw.co.uk for information or Nick Austen on [email protected], 01732 224018 or Gemma Brown on [email protected], 01732 224053.

Citation: Community Matters URI: 11100181

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