For many pharmacists in the UK, a leasehold interest is the cornerstone of their business. It grants them the right to occupy and operate from a property for a set period, providing the stability needed to build a successful practice.
However, navigating the legal complexities of a pharmacy lease can be daunting. This blog post outlines the key terms and considerations every pharmacist should be aware of when taking on a new lease or renewing an existing one in the UK.
Choosing the right pharmacy lease term in the UK
The length of your lease is a critical factor. For a pharmacy, a term of between 10 and 15 years is often considered ideal. This allows sufficient time to establish the business, build goodwill and cultivate a loyal customer base. A longer term provides greater security and makes it easier to secure financing, as lenders view it as a more stable investment. Conversely, a term that is too short may not allow the business to mature fully, while an excessively long term could tie you down if your circumstances change.
The Landlord and Tenant Act 1954
One of the most significant pieces of legislation for commercial tenants in the UK is the Landlord and Tenant Act 1954. It is standard for a pharmacy lease to be ‘contracted within’ the provisions of this Act. This is a crucial protection, as it grants business tenants the right to remain in their premises at the end of their lease and to request a new lease from the landlord. The landlord can only refuse to grant a new lease on specific, legally defined grounds, such as their intention to redevelop the property or their desire to occupy it for their own business.
Pharmacy lease break clauses
Life and business are unpredictable. This is where a break clause becomes an invaluable tool. For leases with a term of more than five years, a break clause allows the tenant to terminate the lease early on specific, pre-agreed dates. This provides flexibility if circumstances change, for example, if the business is not as profitable as expected, or if a better location becomes available.
It’s important to understand that break clauses are almost always conditional. The tenant must satisfy certain criteria, such as having paid all rent and complied with all other lease covenants, for the break to be valid. The conditions must be carefully reviewed to ensure they are fair and achievable. For a pharmacy, special conditions might be negotiated, such as a right to break if patient numbers or prescription volumes fall below a certain threshold, particularly if the pharmacy is located within a health centre.
Understanding pharmacy lease repairing obligations
Landlords typically seek a ‘full repairing and insuring’ (FRI) lease, which obligates the tenant to keep the property in good repair throughout the lease term and return it in the same condition at the end. Before agreeing to an FRI lease, it is essential to have a professional surveyor conduct a full building survey. This will identify any existing disrepair that you could become responsible for.
A more favourable option for the tenant is to limit their repairing obligations by way of a ‘Schedule of Condition.’ This is a photographic and written record of the property’s state at the start of the lease. With a Schedule of Condition, your obligation is limited to returning the property in no better state of repair than it was at the outset, saving you from inheriting potentially costly repair bills.
Pharmacy lease service charges: What UK pharmacists need to know
A pharmacist leasing a space within a larger building typically only needs to worry about repairs inside their pharmacy. The landlord is usually responsible for maintaining the building’s exterior, structure and common areas. To cover these costs, landlords often implement a service charge, which is an additional fee on top of the annual rent. All tenants usually pay a percentage of this charge.
When negotiating a lease, pharmacists should carefully review the service charge clause. It’s important to ensure that the landlord is obligated to provide essential services like cleaning, heating, and lighting in common areas, as well as maintaining the roof and structural elements. Pharmacists should also be aware of these potential additional costs and consider negotiating a cap on service charges when signing a new lease to limit their financial exposure.
Permitted use and dealings
The ‘permitted use’ clause in your lease defines how you can use the property. It should be broad enough to cover all the services you intend to offer, from traditional dispensing and retail to any ancillary activities you might introduce. A good clause might specify ‘use as a retail pharmacy and dispensary chemist with ancillary activities.’
The ‘dealings’ clause governs your ability to assign/sell the lease, sublet the property or share occupation with others. You should ensure the lease permits these dealings, subject to the landlord’s consent.
Conclusion
A well-negotiated pharmacy lease is a foundation for success. By understanding and carefully considering these key terms, pharmacists can secure a lease that provides the stability they need while retaining the flexibility to adapt to the future.
It is always recommended to seek professional legal advice from a solicitor experienced in commercial property and pharmacy law to ensure your lease protects your interests and supports the long-term viability of your business.