Do You Need to Create a Lease or Renew Your Existing Lease Document?

Have you thought about Sale and Leaseback opportunities for your practice?

Renewing an existing surgery lease or creating a new lease is a complicated process and the importance of obtaining specialist advice prior to committing to a lengthy contract should not be underestimated.

With on going uncertainties and disruption within NHS England, it is not guaranteed that the terms agreed between a landlord and tenant will be approved in the same way they would have been the last time the document was created. For example, the practice may consider that they are happy to enter into another fifteen or twenty year lease term with their landlord and sign the documentation accordingly. Similarly, they may consider the level of rent proposed by the landlord to be acceptable for the new lease. However, if the terms of the lease and reimbursement have not been approved by NHS England in full prior to signature, the practice may find themselves in the position that they will not be reimbursed for some or all of their rent and liabilities either for part or all of the term of the new lease.

This applies to a number of other terms as well and of particular concern is the rent review process following the advent of the NHS Directions 2013 (Premises Cost Directions). Specialist rent review clauses need to be incorporated within the lease to ensure proper links to reimbursement to protect both parties as well as the value of the property interest. These clauses need to be approved by all parties.

Notwithstanding all of the above, a retiring doctor may simply want to create a lease to the remaining partners within the practice.  This still requires specialist advice and the inclusion of all of the above, however, this can be a simpler process where the parties can be advised jointly as to suitable Heads of Terms to coincide with current reimbursement levels.

Leading on from this, new leases will also need to be agreed where a Sale and Leaseback situation arises. The number of partners seeking early retirement is increasing and some practices are running into difficulties when trying to attract new partners willing to buy into the property.

As a result, many partners are now opting for a Sale and Leaseback arrangement that separates the property ownership from the practice itself, making it easier for partners to come and go. This also minimises the influence that the property market may have over these decisions, allowing practices to concentrate on the needs of their patients and become less distracted by issues relating to the premises.

Since the recovery of the property market, demand for good investments is strong. Over the last year or so, yields have gone from strength to strength and we are seeing high levels of interest from third party investors looking for health care assets.

However, there continues to be a shortage in supply, which presents a good opportunity for owner occupying practices to realise their asset through Sale and Leaseback.

The process itself involves creating a lease for the practice’s continued occupation of the property which, in turn, should create a marketable property investment which can be offered to prospective purchasers enabling realisation of the capital tied up in the bricks and mortar of the building. If a retiring partner is seeking to retain their property interest because there is an unwillingness for new partners to buy in, then a lease still needs to be created to protect the respective parties’ position. This should be completed prior to the partner retiring to avoid any complications. It is important that any of Heads of Terms prior to drawing up the lease document are agreed and also approved by NHS England, as well as any proposed rental levels agreed with the District Valuer prior to signing the completed document. This ensures that the practice is protected and enhances the new landlord’s investment.

Paula Mace is Deputy Head of the Healthcare Department at Aitchison Raffety, one of the country’s leading experts on surgery premises and primary care medical centres and has over fifteen years’ experience in the healthcare industry working with surgeries, medical centres, healthcare investors and funds across the country.

Should you wish to discuss any of the above, please contact Paula on 01727 844555 or by email at paula.mace@argroup.co.uk